|
I?m planning to start car trading and am trying to find out the implications of VAT registration. I know that if I sell more than £56k worth of cars a year, then I will have to register. But what will this actually mean? Is there a VAT portion of the hammer price when buying at auction? Does the asking price of any car I sell include a VAT element which I?ll then have to pay to customs & excise?
|
The easiest way of putting it is that you will have to pay Customs and Excise Seventeen and a half percent of the profit you make after you have deducted legitimate overheads .
Example of a years trading
Cost of vehicles bought £65000
Vehicles sold for £80000
---------------------------------------------
This shows a Gross profit of £25000
The expenses of running your business £ 5000
------------
Net Profit £20000
----------------------------------------------
VAT payable to Customs and Excise
£20000.00 divided by 47 multiplied by 7 gives a total of £2978
I think this is the correct formula .A quick guide is you will have to pay roughly one sixth of yout net profit to customs and excise.
Your accounts will have to be more detailed than this.
Best of luck
Alan
|
Have to go back to school.
Vehicles sold should read £90000
|
|
|
|
Owen
You will need to keep a record for each car showing the purchase price and the selling price. The (positive) difference between buying and selling is called 'the margin' and is considered to include VAT at the standard rate.
That means the margin is actually 117.5% of your gross profit, so to find how much you need to account to the VAT man, divide the margin by 117.5 then multiply by 17.5 (this can be simplified to divide by 47 and multiply by 70)!
As you have been told you can then deduct any VAT that was included in your expenses then you have to pay over the balance.
Have a look at page 16 of the following document:
www.hmce.gov.uk/forms/graphics/help-motor-ind.pdf
|
|
If you are doing this part-time, you may not need to worry about registering for VAT, as you may not sell enough cars for your turnover to hit the VAT threshold.
|
|
|
|
Regarding VAT on auction cars, the catalogue will describe the vehicle as.....
VAT QUALIFYING VEHICLE - the bid price will INCLUDE VAT. These will be fleet/lease/company cars.You will need to pay VAT on the profit element you make. The only extra charge to you is BUYERS PREMIUM, which itself attracts VAT!
MARGIN VEHICLE - the bid price has no VAT content. You, again, pay VAT on your profit element. Buyers premium in addition to bid price, as before.
PLUS VAT - add 17.5% to the bid price for vans, Police, MoD & sometimes County Court siezed vehicles.
Not as confusing as it sounds, REALLY!!
One other thing, if you open accounts with the auctions, your Buyers premium will be MUCH lower than if you are a private customer. Plus, no need to carry £$£$£ around, or pay for bankers drafts.
Good luck!
VB
|
Owen you should also check this out.
When I was in business i paid my VAT to Customs and Excise four times a year (quarterly periods) I seem to remember that the rules were that if one of your quarterly takings were over one quarter of the lower limit ( according to you 56k) you are compelled to register for VAT.
Example
£56000 divided by 4 quarterly period =£14000 if you exceed this figure in one of the quarterly periods you will have to register for VAT even if you dont reach the £14000 in the other 3 quartetly periods.
Put it this way.
First quarter £8000. Second quarter £14000. Third quarter £3000. Fourth quarter £5000.This totals £30000 for the year but you will still have to register for VAT because of the second quarter of £14000.
The point is if you try to keep to below £56000 per year you will have to be carefull you dont exceed the limit in any of the four periods.
As i have pointed out i am not certain these rules still apply
|
Alan
It must be a few years since you were in business!
The rules have changed now, have a look at the link in my previous post.
|
Paul it is a long time, it is 15 years since i semi retired and 5 years since i fully retired. Those were the days when I looked foward to a routine visit from the VAT inspectors (i dont think)
Just amazes me i can still remember.
Alan
|
|
|
Thanks very much for all your help!
I am hoping that my turnover will exceed the VAT threshold, so i'll have to register. I'll hold off till i've been doing it for a couple of months though, just to make sure that i really want to keep doing it.
Vansboy - does that mean then if i buy a VAT qualifying vehicle (e.g. lease car, which a lot of auction cars tend to be) that although i have to pay the VAT portion of the profit on selling, i can also claim back the VAT portion of the hammer price that i pay at auction?
|
What you do, on a QUALIFIYING vehicle, is re-claim the VAT element you paid upon purchase, which will give you the impression that the car cost less than a margin vehicle.
Then, when you re-sell it, you will have to pay VAT on the difference between your actual cost price & actual selling price, just as you would on a MARGIN car.(So you're no better off)
The main benefit would be to a customer,of yours, that was VAT registerd & bought the car solely for business use. They could then re-claim VAT on the entire cost. This won't happen often, but when it does, it makes your £5000 qualifying car £750 cheaper than the one in the next garage, thats 'one private lady owner'& margin stock!
& if you bought a qualifiying car & came un-stuck, needed to off load it at less than you bought it for, you would be able 'keep' the VAT on the amount you lost, on the deal. Believe me, buying 'wrong', this is SO easy to do!!So a tiny bit of help from HM Customs, in this situation!!
One last thing, my mum always told me to get a proper job - has yours told you yet??!!
Good Luck!!
VB
|
|
Just reading this with interest but it's been a long day so can't quite get my head round it! Why would you be no better off on a QUALIFYING vehicle? In real terms the car *would* cost a lot less than an equivalent MARGIN vehicle if you can reclaim the whole VAT element of the hammer price? If you only pay the 17.5% on just the profit (which could often be a much smaller amount than the purchase price) then sureley the scales are tilted firmly in favour of the trader??
|
From Vansboy post
The main benefit would be to a customer,of yours, that was VAT registerd & bought the car solely for business use. They could then re-claim VAT on the entire cost. This won't happen often, but when it does, it makes your £5000 qualifying car £750 cheaper than the one in the next garage
-----------------------------
That is until you sell the car on and then you have to pay the VAT element of the price you sell the car for, back to Customs and Excise
|
But, of course, you'll have depreciated the asset (car) within your business accounts to such a small amount, that the VAT due to be re-paid, would be minimal.
VB
|
|
|
|
|
|
