Vat Qualifying Cars

[Scooby who 41]

I've a question for all the VAT experts on here. Surely somebody knows the answer, because my accountant isn't giving me concrete answers.

We are buying high value cars from Japan and once they arrive on UK shores there is duty. Then VAT applied under the vat qualifying scheme. Once we sell them to a customer we must collect vat on the full sale price and hand it over when doing our VAT returns. Problem is, it is virtually impossible to make any decent profit for ourselves and we are essentially just an underpaid tax collector.

 

From reading from the following link: Motoring expenses (VAT Notice 700/64) - GOV.UK (www.gov.uk) I see it is possible to put vehicles under ''Stock in trade'' and then the vehicle goes back under the margin scheme and vat is only paid on our actual profit and not on the sale price.

I'm wondering if there is a limit to how often one can do this, or can it be done with every vehicle? What are the limitations?

Any help from someone who has done, or does this on a regular basis would be greatly appreciated.

 Thanks guys!

 

 

Edited July 18, 2022 by Scooby who

[Blenheim Car Sales 111]

I think you are charged VAT  on the  imported car  as per any other goods entering the country, However you are not charging VAT  out on the sale of the car,

 

Am i right in thinking if there is a VAT element on the  invoice you receive then you can happily claim this VAT back in the  way you would do on a commercial vehicle, 

 

Vat is only paid on the Invoice price and the  sale price,  You certainly do not pay VAT twice as you think you do.

[Scooby who 41]

17 minutes ago, Blenheim Car Sales said:

I think you are charged VAT  on the  imported car  as per any other goods entering the country, However you are not charging VAT  out on the sale of the car,

 

Am i right in thinking if there is a VAT element on the  invoice you receive then you can happily claim this VAT back in the  way you would do on a commercial vehicle, 

 

Vat is only paid on the Invoice price and the  sale price,  You certainly do not pay VAT twice as you think you do.

No I am charged VAT at point of entry and this is subtracted from vat total at time of sale. If we can return to VAT margin there is hope of making some profit

[poor-trader 15]

I guess the question is whether these count as "VAT qualifying" cars. There is actually no difference normally on the VAT you end up paying on a margin car or VAT Qualifying. The nett amount is always the same percentage of your profit.

Presumably you reclaim the VAT on your purchase and then charge VAT on your sale? You will then be paying the difference between the two to HMRC which will be the same as a margin car.

To put it another way:

On a car bought for £5000 and sold for £6000:

VAT Qualifying: Car cost £4166.67 + VAT = £5,000. Reclaim £833.33. Sell for £6,000 (£5,000 + £1000 VAT). Total amount payable to HMRC is £1000-£833.33=£166.67

Margin Car: Buy for £5000. Sell for £6000. Profit = £1000. VAT Margin rate is 16.67%. 16.67% of £1000 profit = £166.67 to be paid to HMRC.

[trade vet 704]

Hi guys,

Interesting topic.I think this business model is a minefield.With varying rates of duty charged on both the purchase and freight invoice price and  with VAT charged on top,you must need huge mark ups to make it work.When you factor in waiting times for shipping, type approval and registration at DVLA .DVLA alone can take months and your import will probably get highly taxed as private light goods under the new regs which can confuse punters.

Another consideration regarding VAT is that HMRC inspectors are allowed to interpret their own rules any way they want and challenging them is not easy.Those of us who traded in the 90’s will recall that many dealers did well with Jap imports while following what they thought were the correct import rules.Unfortunately many of them were subsequently destroyed by HMRC at a later date.

You can make enquiries with HMRC but they are unlikely to help and they might refer you to your accountant or your agent as they call them.

So not much help but best of luck,there must be easier ways to sell cars.

 

[Scooby who 41]

On 7/18/2022 at 5:25 PM, poor-trader said:

I guess the question is whether these count as "VAT qualifying" cars. There is actually no difference normally on the VAT you end up paying on a margin car or VAT Qualifying. The nett amount is always the same percentage of your profit.

Presumably you reclaim the VAT on your purchase and then charge VAT on your sale? You will then be paying the difference between the two to HMRC which will be the same as a margin car.

To put it another way:

On a car bought for £5000 and sold for £6000:

VAT Qualifying: Car cost £4166.67 + VAT = £5,000. Reclaim £833.33. Sell for £6,000 (£5,000 + £1000 VAT). Total amount payable to HMRC is £1000-£833.33=£166.67

Margin Car: Buy for £5000. Sell for £6000. Profit = £1000. VAT Margin rate is 16.67%. 16.67% of £1000 profit = £166.67 to be paid to HMRC.

Poor-Trader. Thanks for your input. I think this is where the confusion lies. 

Is the VAT on these imports calculated as it is on a commercial vehicle or a VAT qualifying vehicle. Maybe somebody here can answer before I run it by my accountant.

 

I understood that this is how the vat was calculated :

Example car purchased outside UK

£10,000 car cost inc Duty

£2,000 VAT @20%

£1,000 prep cost

£2,500 profit 

£15,500 sale price 

£2583.33 Vat on sale minus £2000 already paid at point of entry 

£583.33 owed in additional VAT 

 

Correct or incorrect? 
 

 

 

 

 

 

 

Edited July 20, 2022 by Scooby who

[poor-trader 15]

8 hours ago, Scooby who said:

 

£10,000 car cost inc Duty

£2,000 VAT @20%

£1,000 prep cost

£2,500 profit 

£15,500 sale price 

£2583.33 Vat on sale minus £2000 already paid at point of entry 

£583.33 owed in additional VAT 

 

Correct or incorrect? 
 

Correct. But it would be exactly the same on a margin car if you didn't reclaim the VAT. Total purchase price is £12,000. Sale price £15500. Gross profit £3500. £3500 x .1667 margin VAT rate = £583.33 VAT owed.

Basically if you are VAT registered you will be paying 16.67% of your gross profit to HMRC on any vehicle. Doesn't matter on the scheme used.