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As many vehicles traded by used car dealers are purchased from private individuals, there is no input VAT for the dealer to claim back – sellers of new goods can normally claim back the VAT charged by its suppliers on goods purchased for resale. This would mean that the second hand dealer would have to pay over the VAT on the full selling price to HMRC, with no reclaimable VAT to offset this.
The VAT margin scheme was therefore introduced to allow sellers of second-hand goods to only account for VAT on the margin on the sale of eligible goods – ie the difference between the price paid for the vehicle & the selling price. This method reflects what would normally happen for sellers of brand new goods.
Conditions of using the Margin scheme
In order to use the margin scheme the vehicle sold must be eligible for the scheme in that it must have been driven on the roads for business or pleasure purposes & be suitable for further use. The eligible vehicle should have been purchased from a private individual, a non-VAT registered business or from another VAT-registered dealer who supplied the vehicle under the Margin scheme.
If a vehicle has been purchased from VAT-registered business which has charged VAT on the vehicle, then VAT should be accounted for in the normal way – ie VAT paid over in full on the sales price but with the VAT reclaimed on the purchase price.
How is the Margin calculated?
The margin is the difference between the selling price & purchase price. This margin is the gross (VAT-inclusive amount), so for example a vehicle purchased for £1,400 & sold for £2,000 gives a gross margin of £600 & the VAT thereon is £100 (£600 x 20/120). We have encountered dealers who for years have treated the margin incorrectly as the net amount & calculated VAT on top of the margin amount & been overpaying the VAT-man!
HMRC stipulate the invoicing, record keeping & stock book requirements of the scheme, as detailed below.
Your stock book must be up to date at all times and must include the following information for each item you purchase for resale under the Margin Scheme (you can include any other information for your own accounting purposes);
Purchase details:Sales details:
Stock number in numerical sequenceDate of sale
Date of purchaseSales invoice number
Purchase invoice numberName of buyer
Purchase priceSelling price
Name of sellerMargin on sale
Car make, model & registration numberVAT due
The following information must always appear on your purchase invoices:
- seller’s name and address
- your name and address
- stock book number
- invoice number
- date of transaction
- a description of the goods including any unique identification number
- total price – you must not add any other costs to this price
- and for goods purchased from another VAT registered dealer, a declaration by the seller that “Input tax deduction has not been and will not be claimed by me in respect of the goods sold on this invoice”
The following information must always appear on your sales invoices:
- your name and address and VAT registration number
- buyer’s name and address
- stock book number
- invoice number
- date of sale
- a description of the goods including any unique reference number
- total price – you must not show VAT separately
- a declaration “Input tax deduction has not been and will not be claimed by me in respect of the goods sold on this invoice”
Accounting for the VAT margin scheme
Our range of accounting templates are designed to ease the whole process of record-keeping, invoice generation & VAT return preparation for used vehicle traders. They have been designed with the HMRC requirements in mind & are certain to save you time and prevent a few headaches.
To see a video of the spreadsheet in action & read comments from some of our grateful customers, just visit us at: