Few questions please (VAT & SOR mainly)

[Jimbo 11]

Hi guys been reading the forum for months but now trading i have some specific questions i cant get my head around. Some experienced insight would be great please

 

i am currently trading from home but looking at potential small sites to use. 

First query is about vat. Just Selling a couple of £4-5k cars a month will put me over the threshold. 

I have read about the vat margin which is great but;

1- do you keep one set of accounts for just the purchase and sale price of each car and pay the margin vat on all profit?

2- do you then keep a seperate account/spreadsheet for all other expenses in and out like trade plates, insurance, stationary, advertising outgoings and other business incomes like mot and servicing and then pay normal vat (minus costs) on all that turnover?

3- if you buy your stock from a fairly large independent dealer are you still ok to qualify for the margin vat scheme?

4- if you arent in margin scheme how is it possible to make any money on selling cars once vat registered. Example - buy a car for £8k and sell for £10k. £2k profit. But the vat due on that £10k sale is £2k unless im missing something!!

5- if you offee sale or return do you account for the whole selling price as shown in question 1 or just the commission you earn?

6- what are the markets normal commission rates to offer clients when doing sale or returns? I was thinking 10% of sale price with a £1k minimum base rate. 

 

Im so keen to get this right and make a real go of the business but some of these q's are really frying my brain!

 

thanks in advance

J

[jimreidvehicle 255]

Hi Jimbo

welcome to the Forum. I'll cover each question in the same order as asked.

1. The margin vat scheme is only for second hand goods inc cars and antiques ( which are often cars too) your always best to keep a separate stock file for each car you buy this would inc the purchase invoice regardless if that comes from a private individual or other garage, when you sell it you also file in the same stock file the sales invoice which means you have now two figures to use. If you bought the car at £5000 and sold it for £6000 (forgetting about any prep costs at this stage) on paper you would make £1000, however margin vat means you pay vat on your margin/profit that you have made which is £1000. Therefore the easy calculation is divide 1000 by 1.2 to get 833.33 which is your retained profit after vat, in turn you have to pay £166.67 of vat on that sale.

Your vat period will determine when you pay this but you only pay margin vat on profit made at gross level. If your 3 months vat period is Jan-March then for all cars sold within that period you add the vat eminents together and pay the margin vat at end of period (normally due a month later) there is a place on your vat return for margin scheme vat. So yes treat it separate. Remember if you make no profit you pay no margin vat, however if you make a loss you can't recover vat lost.

2.All other business expense like cost of sale , servicing , stationary etc you would claim back the vat on these invoices in the month you bought them , again outing in your claim for all purchase within the period of Jan-March. This would get back the vat you have paid out.

 

3. Unless you are buying nearly new , ex rental or vans which have different vat elelments they are called vat qualifiing , then regardless of where you buy from you pay margin vat on profit.

4. Hopefully number one covers this

5. Depending on how you treat the sor sale. E.g. If you display a car for someone and agree a price that you will pay for the car once it's sold then if you are buying in the car into stock the same margin vat will apply between buying and selling. If however you display car for customer and only take a commission on the sale and don't put the sale through your accounts ( be careful) but you would invoice the customer your services but plus vat on the invoice which the customer pays you and you declare on vat return as a sale of service.

6. The choice is yours, however be very careful because if you are selling a car from your forecourt it is deemed a sale to the public which means you are responsible through the Consumer Rights Act. Always best to agree a purchase price and put a margin across and treat it like one of your own cars, keeps HMRC happy.

 

not sure if that all makes sense, but yeh once you are retailing cars and paying vat, all of a sudden the world gets that bit harder,

all the best

Jim 

[Jimbo 11]

Morning Jim

thank you so much for taking the time to reply its very kind

can i just ask why vat is £166 on a £1k bill and not 20% of £1k which i thought would be £200  

So effectively every single used car trader and garage are on the margin vat scheme? Hmrc made it sound like it was really hard to be a part of it. 

Problem i was having as asked in question 4 was surely anyone not in the margin scheme cant operate (If you sell a £60k GTR you would have a £12k vat bill but only have made £4k for example). Is no one on a traditional "vat on turnover"?

i was trying to work that out yesterday thinking about a friends £30k car i was going to offer SOR and make around £1k commission but then though "oh crap vat on that £30k sale is £6k so i'd actually be £5k down!!!

Just to clarify, if you offer other services such as mot's that goes on the seperate vat spreadsheet for income not on the margin one?

[Beautiful South Martin 24]

Hi Jimbo,

Not sure how you are planning to do your accounts, either yourself or via an accountant, but my advise would be to get yourself a cash book ledger and keep your own records whilst your are in the early stages of growth. If you message me I can give you the name of the people I get mine from, its about £30 and lasts a full accounting year.

Firstly you need to record every single purchase you make i.e. Recon costs, RFL, Fuel, stationary, warranty etc and break the VAT down on each entry. Then you need to record all monies received each month against sales. You then balance all this (to the penny) against your bank statement every month, known as a bank rec, its sounds complicated but its not after you've done it a few times. Secondly you need a stock book, in here you record, on the left hand side, all details of the car stock you have purchased including the purchase price. On the right hand side you record the details of who purchased the car together with the sale price. It is hear you have a VAT column where you record the VAT on the margin, you can do it the way Jim mentioned, personally I take my margin, say £1000 and times it by 16.667%, giving a VAT margin of £166.67. Every quarter you tot up all the VAT you owe HMRC from your stock book and then tot up all the VAT you claim back off HMRC from your cash book, the difference is how much you owe them. The only thing you need to be aware of is there are certain things you can't claim VAT back on, stamps from the post office is one thing (not sure why?), you may want to check with your accountant or contact HMRC direct on this, Ive always found them very helpful.

If you need anymore help please get in touch....Hope this helps.

 

[umesh 336]

Jimbo 

VAT - Catches lots out - quick calc is profit /margin £1000 - divide by 6 = £166.66 that is the vat element ! 

We're all here to help shout away !

Umesh

[jimreidvehicle 255]

19 minutes ago, umesh said:

Jimbo 

VAT - Catches lots out - quick calc is profit /margin £1000 - divide by 6 = £166.66 that is the vat element ! 

We're all here to help shout away !

Umesh

Umesh , I'm paying 1p vat more than you on each sale arghhhhhh!! lol

[jimreidvehicle 255]

2 hours ago, Jimbo said:

Morning Jim

thank you so much for taking the time to reply its very kind

can i just ask why vat is £166 on a £1k bill and not 20% of £1k which i thought would be £200  

So effectively every single used car trader and garage are on the margin vat scheme? Hmrc made it sound like it was really hard to be a part of it. 

Problem i was having as asked in question 4 was surely anyone not in the margin scheme cant operate (If you sell a £60k GTR you would have a £12k vat bill but only have made £4k for example). Is no one on a traditional "vat on turnover"?

i was trying to work that out yesterday thinking about a friends £30k car i was going to offer SOR and make around £1k commission but then though "oh crap vat on that £30k sale is £6k so i'd actually be £5k down!!!

Just to clarify, if you offer other services such as mot's that goes on the seperate vat spreadsheet for income not on the margin one?

Hi Jimbo, no problem

It's £166.67 of Margin vat because you are only paying VAT as a percentage of your profit .

 

Every car dealer & trader will be registered under the Margin Vat scheme if they are selling used cars if there turnover is over £85,000 per annum

The simple way to look at is purchase price less sale price divided by 6 equals what you are due on vat

If you are selling any other service , let that be any service you will have to charge out vat and detail that on a vat invoice with your VAT number.

When I started up 14 years ago I tried to do all the accounts myself, nope! Get a book keeper to do your monthly's and vat every quarter and an accountant to check your accounts, we all have strengths, use their's!

Jim    

[Cornish Guy 45]

Jimbo

£833.33 + 20% VAT (£166.67) = £1000

[umesh 336]

1 hour ago, jimreidvehicle said:

Umesh , I'm paying 1p vat more than you on each sale arghhhhhh!! lol

Jim ... You know what they say about the pennies ..... !

Spot on with using book keepers and accountants ! Concentrate on the job in hand let the experts do their bit .. Cheaper and more efficient in the long run !!

As I explained to some one a few weeks ago doing their own valeting to save £50 , Took them sometimes 2 days to get the car mint but saved £50 not paying someone else .. I pointed out they could earn a lot more with their time dedicated to buying/selling/marketing their cars/business than saving £50! #JustSaying 

[trade vet 702]

Hi Jimbo,the bottom line is record keeping is very important because HMRC have always been suspicious of us.You will get some good advice on here and here is some more.S.O.R - all vehicles you offer for sale should be recorded in your stock book whether you sell them or not.The reason for this is,when you are inspected by HMRC 3 or 4 years in the future,they may have a copy of your advertised stock at some given time which they then compare with your stock book records.Typically,they could find a S.O?R car which is not recorded in your stock book,which 3 or 4 years on you may not be able to remember as you handed it back.I am not trying to put you off,but the danger here is HMRC could take the view that this is a regular occurrence and then assess for undeclared VAT+penalties+interest.........It happened to us.

[Jimbo 11]

7 hours ago, Beautiful South Martin said:

Hi Jimbo,

Not sure how you are planning to do your accounts, either yourself or via an accountant, but my advise would be to get yourself a cash book ledger and keep your own records whilst your are in the early stages of growth. If you message me I can give you the name of the people I get mine from, its about £30 and lasts a full accounting year.

Firstly you need to record every single purchase you make i.e. Recon costs, RFL, Fuel, stationary, warranty etc and break the VAT down on each entry. Then you need to record all monies received each month against sales. You then balance all this (to the penny) against your bank statement every month, known as a bank rec, its sounds complicated but its not after you've done it a few times. Secondly you need a stock book, in here you record, on the left hand side, all details of the car stock you have purchased including the purchase price. On the right hand side you record the details of who purchased the car together with the sale price. It is hear you have a VAT column where you record the VAT on the margin, you can do it the way Jim mentioned, personally I take my margin, say £1000 and times it by 16.667%, giving a VAT margin of £166.67. Every quarter you tot up all the VAT you owe HMRC from your stock book and then tot up all the VAT you claim back off HMRC from your cash book, the difference is how much you owe them. The only thing you need to be aware of is there are certain things you can't claim VAT back on, stamps from the post office is one thing (not sure why?), you may want to check with your accountant or contact HMRC direct on this, Ive always found them very helpful.

If you need anymore help please get in touch....Hope this helps.

 

Hi thanks very much

i was planning on using a spreadsheet for my books. 

Detailing all purchases (cars and all other expenses) and another tab for all my incoming sales

is there a basic tax accounting spreadsheet anyone can share/email to me?

sounds like i need a spreadsheet just for car sales in, another for car sales out and another 2 for general purchases and general sales excluding cars like mots i do for clients and any other incoming revenue

5 hours ago, trade vet said:

Hi Jimbo,the bottom line is record keeping is very important because HMRC have always been suspicious of us.You will get some good advice on here and here is some more.S.O.R - all vehicles you offer for sale should be recorded in your stock book whether you sell them or not.The reason for this is,when you are inspected by HMRC 3 or 4 years in the future,they may have a copy of your advertised stock at some given time which they then compare with your stock book records.Typically,they could find a S.O?R car which is not recorded in your stock book,which 3 or 4 years on you may not be able to remember as you handed it back.I am not trying to put you off,but the danger here is HMRC could take the view that this is a regular occurrence and then assess for undeclared VAT+penalties+interest.........It happened to us.

Thanks. The business model is to buy/sell cars but also offer other services. 

- I would like to charge a commission to sale/return clients cars - do you know the general rate for this? Is 10% of sale of their car fair?

- i would like to charge a commission to find cars for people. Is there a going rate for "finders fee"? Im assuming any commission for this will be on my seperate "normal vat" spreadsheet not the margin one?!

[Stephen 21]

If you sell a car for a client why not buy it at the right price and sell it yourself. Otherwise although your only acting in theory as an agent your liable for all the repairs fault etc

Why would anyone pay you to find them a car? If its a top end motor they will buy from main dealers, if its a run about theres loads of pitches around. This this idea is best forgotten. Unless you have millionaire clients 

[Jimbo 11]

Evening guys

 

does anyone have an example or template cash book ledger i could be emailed please. 

 

Or a spreadsheet used to detail the car sales in and out and the general sales in and out please

[Rory RSC 596]

On 18/08/2017 at 9:32 AM, umesh said:

Jim ... You know what they say about the pennies ..... !

Spot on with using book keepers and accountants ! Concentrate on the job in hand let the experts do their bit .. Cheaper and more efficient in the long run !!

As I explained to some one a few weeks ago doing their own valeting to save £50 , Took them sometimes 2 days to get the car mint but saved £50 not paying someone else .. I pointed out they could earn a lot more with their time dedicated to buying/selling/marketing their cars/business than saving £50! #JustSaying 

Some people never learn though Umesh and you can tell them over and over and they wonder why they don't move forward 

 

[Tom 164]

20 hours ago, Jimbo said:

Evening guys

 

does anyone have an example or template cash book ledger i could be emailed please. 

 

Or a spreadsheet used to detail the car sales in and out and the general sales in and out please

you mean a stock book? lawgistics sell them. 

[Arfur Dealy 823]

Surely it's the bid price plus buyers premium ( not including the other auction costs) is the purchase price on the margin scheme ? 

[Jimbo 11]

On 19/08/2017 at 6:02 PM, Tom said:

you mean a stock book? lawgistics sell them. 

Hi yeah just something to seperate sales of cars coming under margin vat and another spreadsheet for all other ins and outs under normal vat?

until i need to register for vat i'll just use my normal basic spreadsheet ive used for other ltd companies

would be good to know though as vat threshhold wont take much to pass