Part exchanges and VAT Taxable Turnover

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Hopefully I'm not misusing this question thread (apologies if I am). I'm a sole trader and am wondering how to treat a part exchange for the purposes of calculating my VAT taxable turnover (or whichever turnover determines whether I'm under or over the VAT registration threshold). For example, if I am selling an item at cost for £1000, and agree to accept £600 plus goods from a buyer, and then subsequently sell the goods for £600 to another buyer, what is my VAT taxable turnover for this whole activity?

I believe that if I was VAT registered (which I'm not), I'd have to charge the first buyer VAT on the full £1000 and then to the second buyer on £600, so I'd charge VAT on £1600. But since HMRC seems to calculate profit as turnover minus allowable expenses, it seems that my VAT taxable turnover should be £1200, since my profit is £200, not £600(?)

I'd be grateful if anyone could help clarify this matter for me. Thanks in advance.

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RLI
By lionofludesch
08th Apr 2017 14:34

Well, you've unwittingly hit on the answer in your question.

"Turnover" is not "profit".

I'm not sure what you mean by "selling an item at cost" - why are you in business to sell items at what they cost you? Perhaps you could clarify that.

Your turnover for VAT is indeed the £1600 which you calculate. That will determine when you need to register for VAT. Your VAT payment, however, will not just be the tax on £1600 (£266.66), however, it will be reduced by any VAT you pay to people from whom you buy stuff.

Your profit, on which you'll pay income tax, is indeed £200.

There are special schemes for second hand goods which you'll need to look at if and when you register.

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By Digipot82
08th Apr 2017 15:02

Thanks for your reply. I wrote 'at cost' to simplify the example (you are right that I would not normally be selling at cost).

So would it be correct to say that my turnover for the purposes of the VAT registration threshold may not be equal to profits+expenses?

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Replying to Digipot82:
RLI
By lionofludesch
08th Apr 2017 15:05

No.

In your example, your expenses are £1000 + £400 and your profit is £200.

Adding them all together comes to your £1600 turnover.

You need to think of "part exchanges" as buying one thing and selling another.

Which is exactly what it is.

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Replying to lionofludesch:
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By Digipot82
08th Apr 2017 15:13

Sorry if I'm being a bit slow, but could you tell me where the £400 expense is incurred?

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Replying to Digipot82:
RLI
By lionofludesch
08th Apr 2017 15:29

Part exchange value of whatever you went on to sell for £600.

As I said, think of part exchange as buying one thing and selling another.

How would it be if your customer paid you £1000 and you paid him £400 ? Any clearer ?

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