I've been there and got the T-shirt (and still wear it!).
I actually started selling cars many many years ago when my father and I had an independent mechanical service/repair business. We had some forecourt area free and so used to sell used cars. Often a customer would have a car that failed an MoT and needed expensive repairs and we would be able to sell them a car - we usually had things like Escorts Viva/Astras etc etc - i.e. mid-sized and 2-6 years old. The cars mainly came from auction or were trade-ins from local main dealers that we knew.
Subsequently to my father retiring (and me not wanting to carry on in the repair business) I have sold cars from house (for about the last 10 years). I am lucky in that I have a fair bit of room and although I have neighbours, they are some distance away and have never complained (well, not to me anyway). I think the secret is to 'specialise', so I buy/sell mainly Mercs, the odd BMW and the odd Jap import sports car (MR2, FTO etc). Basically I stick to damage free stuff with sensible mileage and from 'reliable' makers. I would not sell a Renault, Cit or FIAT, for example - 99% chance of them coming back within a month or two. Touchwood - so far no major problems and many happy customers. If I get an 'awkward prospect' then I don't sell to them.
Selling anything over about £6k from a 'private' premises is a bit tricky, in my experience. I have sold the odd car over £10k, but not without difficulty. People paying over about £5-6k usually want finance and the security of buying from dealer premises. Selling anything up to £2k is pretty easy if the price is appropriate and the car is in good nick.
I have sold a number of cars on eBay - its worked well for me. Plenty of pics taken in good light and an accurate description giving the size and location of blemishes etc. I also offer a 'satisfaction' guarantee (i.e. if they turn up and don't agree with my description then I refund the deposit and no negative feedback left - we just 'agree not to go through with the transaction'). I also stress that their bid price is final and that no reduction in price is possible - i.e. if they travel in the hope of getting the car for less then they are wasting their time. To date I have had no problems and buyers have gone away happy. Having said all that I have been buying and selling cars (albeit in small numbers) for 20+ years and can generally spot a 'wrong un' pretty easily; also I do this as something of a hobby (profits go into my annual holiday fund) so I'm not greedy - I'd sooner sell a car in a week and make £300 than hang on to it for a month and make £800.
Comments above re. VAT, IR etc etc are all valid - but I have my own Ltd Co. anyway so this just adds to the mix. I do my own accounts too - having being screwed up by so-called 'professional' accountants in the past.
Bear in mind there will be some interruption to your personal life - going to auctions is very tiresome and most buyers will come Friday afternoons/evenings and at weekends.
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Just remember, just one car bought as a bargain with the intention of resale, and sold at a profit gives rise to a taxable profit. Ignore the twaddle written by many who should know better (and I point a large finger at HJ, for one, in a recent Telegraph question) who claim that so long as you're selling fewer than four - or six - or however many jars of beer they drank last night then you're OK.
I once had hte dubious pleasure of owning five cars in a six month period. Two stolen, one I returned to a small time trader owing to dipsomaniac oil habit (beware that sort of liability), the one I had at the start, and the one at the end. I was no trader!
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'Just remember, just one car bought as a bargain with the intention of resale, and sold at a profit gives rise to a taxable profit.'
Sorry Map completely untrue. Whether or not a trade has commenced is judged by six tests known as the 'badges of trade' one of them is intention to make a profit another is frequency. Where HMRC put the frequency test is up to them, it is currently 4, but ultimately the decision is up to a court.
No you may not wish to challenge HMRC in court, but the first stage a trip to see the Special Commissioners is easy informal and free if you represent yourself, in my experience they are sensible and fair minded, but HMRC will NOT take one car sold as a trade under any circumstances.
I am an accountant and tax adviser.
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Tosh and hearsay, Tommo.
The Inland Revenue manuals are available on the 'net, and they indicate the procedures that should be followed by an Inspector. Please would you indicate the web reference within the manuals that refers to '4'.
You refer to the six badges of trade - as identified by the 1955 Royal Commission - but for a strange reason you focus only on two. In any case, nowadays there are generally held to be nine such badges, following the modern case Marson v Morton. They are neatly summarised at www.hmrc.gov.uk/manuals/bimmanual/BIM20205.htm
CIR v Fraser is an ideal example of an isolated transaction being considered as trading, see www.hmrc.gov.uk/manuals/bimmanual/BIM20230.htm
As an aside, I always wonder at property experts who talk about trading their way up the property ladder. Both David Snell and Alison Cork have written articles in the last year (Cork's in the last month) in the Telegraph stating their methodology for trading their way up the housing ladder. If I were their Inspector of Taxes I should be looking to disapply the PPR relief on their sales of their own houses.
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If you want to start trading but dont want your own premises yet....
Get in touch with a few local quality 2nd hand sales pitches and see if they will put your car(s) on their forecourts? They will want some commission out of any sale though so you will have to allow for it.
They may be able to offer warranty from the site too.
But, (big but!) make sure you can trust them etc because if your car gets sold and you dont see the money etc, or the car gets damged etc, or the car gets returned under warranty etc, plus lots of othe nasty possibilities.
But it is a way in to the trade, getting traders on your side too. But maybe start at bit cheaper end? see how it goes ?
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Oh yes... and I completely forgot to point out that you don't have to be trading in order to have a taxable income profit. Ever heard of 'other income', or Case VI income?
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Map,
Why you need to be so unpleasant to people who disagree with your OPINION I don't know but I will keep my reply civilised apart from noting that a little knowledge is a very dangerous thing.
The Inland Revenue manuals are just that manuals, generalised guidance, even then only a fraction of them are published. HMRC likes to quote them as if they are law when it suits them and dismiss them as merely manuals when it does not.
The subject of what does and does not constitute a trade is one of the largest area of case law in tax. You quote one case were a single transaction was deemed a trade, I could quote 20 for and another 20 against. Its an inconclusive area. A key aspect of all cases where a single transaction has been deemed a trade is size, I don't think a single car even a Roller would cut it.
The reason I only refereed to six badges is because one of the established badges of frequency would not be met by a single sale of a car and so there is no need to look any further. The test of what is not frequent is initially up to the inspector concerned and if appealed ultimately up to a court of law. HMRC have as a rule used the number 4 for many years. If your were in the business you would know this. But I stress again that this is the inspectors opinion it is not law and it is always open to the taxpayer to appeal. I hereby offer to represent any backroomer in front of the Special Commissioner where his inspector is claiming that the sale of one car is a trade in return for an amount equal to half of the tax assessed.
Finally as to your reference to Schedule VI, other income, the sale of a car otherwise than as part of a trade is the disposal of a capital asset, capital assets are subject to capital gains tax but a car would fall as a chattel under capital gains tax legislation and is thus exempted.
Happy now?
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Oh deary deary me. You're a tax accountant?
You unfortunately show a complete misunderstanding of the application of the badges of trade to determining the existence, or otherwise, of a trade. You are absolutely wrong in stating that the absence of a single badge of trade (in your example, frequency) indicates the absence of a trade. Quote: The reason I only refereed to six badges is because one of the established badges of frequency would not be met by a single sale of a car and so there is no need to look any further.
I suggest you read the detailed case of Marson v Morton. In the interim, a short quotation from the Inspectors' manuals www.hmrc.gov.uk/manuals/bimmanual/BIM20205.htm may help you to understand this point. The approach by the courts has been to decide questions of trade on the basis of the overall impression gained from a review of all the badges.
I suggest also you review the chargeable gains legislation. The disposal of a chattel, in general, gives rise to a chargeable gain - unless the chattel is of small value. Cars are exempt because they are wasting assets. You are incorrect to assert that a car would fall as a chattel under capital gains tax legislation and is thus exempted.
In practice, they would never be able to catch up with you when it comes to occasional trades. This topic comes up regularly on this forum, and there are several tax advisers here. None has ever agreed with your assertion that it is acceptable to trade up to four cars per annum at a profit without this activity becoming taxable.
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Map I have decide that < snip > in future I shall just ignore your increasingly unpleasant rants on here.
[ Post heavily edited. Please can you try and refrain from personal insults and behave like the professional adult you are asking us to believe you are? Thanks. PG ]
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thommo - i think in my opinion you have got it right on the balance of probabilities.
in reply to mapmaker said:
Just remember, just one car bought as a bargain with the intention of resale, and sold at a profit gives rise to a taxable profit.
from www.hmrc.gov.uk/manuals/bimmanual/BIM20205.htm
An intention to make a profit supports trading, but by itself is not conclusive
mapmaker said CIR v Fraser is an ideal example of an isolated transaction being considered as trading, see www.hmrc.gov.uk/manuals/bimmanual/BIM20230.htm
well that link says "A single isolated transaction can amount to the carrying on of a trade for tax purposes, but it is generally not easy to show that that is the case. .... The purchaser of a large quantity of a quantity of a commodity like whisky, greatly in excess of what could be used by himself, ....
mapmaker saidYou unfortunately show a complete misunderstanding of the application of the badges of trade to determining the existence, or otherwise, of a trade. You are absolutely wrong in stating that the absence of a single badge of trade
well the link www.hmrc.gov.uk/manuals/bimmanual/BIM20205.htm lists the badges of trade and in my view the first two will on their own pretty much disprove that you are a "trader" if you sell just one car for profit -
1. Profit seeking motive (see BIM20210). An intention to make a profit supports trading, but by itself is not conclusive.
2. The number of transactions (see BIM20230). Systematic and repeated transactions will support 'trade'.
like thommo, i will now withdraw from the discussion.
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like thommo, i will now withdraw from the discussion
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except to add the lexisnexis link below
www.lexisnexis.co.uk/taxtutor/pdf/free_pdf/2a01.pdf
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I'm afraid I - like thommo (we do agree on one thing at least:-)) - agree that Mapmakers posts on taxation are best ignored. I speak with some practical experience.
madf
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< snip >
[ Adam - you're like one of those kids who stands on the edge of a ruck on the school playground shouting "fight, fight, fight". Please give it a rest. PG ]
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I'm very surprised to see a post by Aprilla cut out - he doesnt strike me as the sort to make wild inflamatory comments.
(this isnt a fight! call btw)
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I will not be censored whilst my attacker is allowed free rein.
Delete my membership details I will not return.
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Thommo, your "attacker" didn't resort to personal insults and rudeness. You did - hence why your post was edited.
As for deleting your membership, if you're not returning, then there will be no need as you won't be using it anyway.
Any further conversation in this thread on how this site is moderated will be deleted, and any persistance will result in the thread being locked.
And now back to motoring.
DD.
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Well I'm pleased to say that I am not a 'tax accountant' and not an accountant. I have however done tax for 20 odd years. Currently working for a top 4 firm, and charged out to all and sundry at an impressive rate, and they pay!
Sadly Mapmaker is right.
Unfortunately for a client I was at a CIF office last week, and they want the tax on the profits he makes on two cars a year. Given the circumstances I'm struggling to get him off that bit, never mind the £x00,000 cheque we paid over may help ...
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>>Unfortunately for a client I was at a CIF office last week...
Sounds like there might just be a bit more to this story than just two cars a year... So I'm not sure its either a comparable example or relevant.
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Believe me there is a lot more to this story!
However Son 2 has had no involvement in the, shall we say, interesting activities of Dad and Son 1, but is still a director of the company.
His car dealing consists of buying 1 to 3 expensive cars a year always 'unloved' he spends some time but little money on 'tarting them up' keeps it for 2 to 6 months and then sells them on at an average £1k or so profit. Does it for fun, doesn't need the money or the car (the company and his other job look after both).
Difficult to argue he's not trading, no evidence of a minimum number of deals rule being applied.
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