Claiming Internal Labour

[SWSS 0]

Hi I wonder if someone could help. We are an independent garage who have recently startng selling vehicles along side our existing repair business.

My question is, can I charge labour on a vehicle to a sales ( internal ) invoice. My accountant believes that this can not be done., Surely my Technicians' are a direct cost to our company as is lighting, and general bills etc and also retail work that cannot be carried out whilst a sales repair is being carried out. Surely this comes off the profit of any vehicle sold thus lowering Tax.

Say our Retail Labour Rate is £60 plus VAT could I charge that to a Sales job on the basis that I cannot carry out any retail work, or would I have to work out my direct cost I.e cost of Technician etc say £30.00 per labour and use that as an Internal Labour.

I cannot see how there is not an internal labour cost as my accountant suggests as there is a cost to our business when carrying out additional sales work.

Thank you

[James Baggott 227]

I'm sure this is fine. But I'm no expert. Car Dealer Club membership with free legal advice would be able to help you here...

cardealerclub.com

Welcome to the forum too :)

[Gavin@Rousdon 137]

For it to work you would have to split your business into sales and workshop, with spearate tax returns and different VAT numbers. Its your choice to sell cars, if you chose to have technicians working on sales car rather the more profitable retail work then thats your choice. The expense is the persons wage, what he could or couldn't  earn you has no bearing on the cost of running you business.

 

Internal labour charges tell you how profitable each part of your business is but they are internal and are of zero interest to the taxman.

 

The way you are thinking means we could decide a technician is worth £60 per hour, get him to do nothing for 40 hours at a cost of say £400 (£10per hour) then reduce our business's profit by that week by £2400 (40x£60 per hour). We can't just make up an expense without paying it, its called tax evasion!!

[SWSS 0]

Thank you for your comments. We did have a chat about the possibility of splitting up the business as suggested. One for the future !

 

[umesh 336]

Personally if you split the business you’re making more paper work and headaches that comes with it, I see exactly where you’re coming from. Many years ago in my days at a franchised dealer the labour rate was charged at normal retail rate to the sales department (Internally) this was so that the service department shows its own profitability and that the sales department wasn’t make ‘extra’ profit on a reduced labour rate. This also stopped the workshop pushing back sales cars as the sales department was paying the full rate. I do remember a couple of dealers who used to say that system was unfair on the ‘sales’ department at their sites so they would sublet the work at a discounted price to an ‘outside’ company.
I tried to explain the sublet was a no, no! As this was putting money out of the business, where the ‘internal ‘rate might have been retail BUT that was only ‘paper’ shuffling between departments! Furthermore some of dealers were also buying accessories i.e. alloy wheels from outside companies because they got a ‘better deal’ than their own parts department !! try explain to people better to keep the money in the same business – same pot – regardless of ‘which’ department benefits !

[Gavin@Rousdon 137]

Charging the sales department the full rate was also used to bring down the salesperson commission if they were on 10% of the profit in the deal.