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VAT on Car parts

Hi All

I realise there have been a number of posts on this topic of the second hand margin scheme for cars but none that have specifically addressed the selling of second hand car parts. Can someone please advise here, or point me in the right direction? I didn't feel the HMRC website addressed it particularly well either.

Need the information as met with a potential new client and in looking into quoting for book-keeping. They don't have a particularly high turnover of cars each quarter but do seem to sell a lot of these parts second hand on ebay for example. The second hand car trade has never appealed to me so I need to weigh up if I should actually try to get the client.

Much appreciated.

Bernice

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By neileg
24th Apr 2012 11:46

Taxable

The margin scheme only works  for entire assets. The trader will not pay input tax on the cars bought but will have to charge output tax on the sale of parts.

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24th Apr 2012 13:29

Global Accounting

Although as Neil says the full Second hand margin scheme won't apply here because of the breaking up of the items, this doesn't necessarily mean VAT on all parts.

If the trader is buying s/h cars with a view to breaking them down for scrap (which would include separating out individual parts for resale) then these values can be used in the global accounting scheme which deals with bulk purchasing and sales not otherwise suitable for the main scheme. Thus a vehicle bought for £600 with parts then sold on individually for a total of £700 will only pay VAT against the £100 margin.

However if an individual sale is over £500 it's excluded from the scheme and will have VAT on the full value.

The HMRC manual reference for breaking up cars is here: http://www.hmrc.gov.uk/manuals/vatmargmanual/VATMARG03300.htm

and the general blurb on the scheme is in notice 718 Section 14:

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&id=HMCE_CL_000145&propertyType=document#P895_54498

Of course if he's just trading directly in parts and buying from the public rather than breaking up cars then he's probably eligible for the main scheme or, depending on values, global acounting as detailed above anyway.

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By BMary83
24th Apr 2012 17:20

Spidersong

Hi Spidersong

 

They both break vehicles for resale to the general public and buy and sell second hand cars, for which they account for the VAT under the second hand car scheme.  On this basis, will they automatically be excluded from using the Global Scheme since I assume you can't operate under both schemes at the same time?

 

If so, my understanding would be that they can't claim back any VAT on the original purchase of the car (as obviously none was charged) but they must charge the full rate of VAT on the sale of the part @ 20%?  So using your example if a car was bought specifically with in the intention of breaking up, if they pay £600 but sell total parts for £700 and they must charge VAT on the full £700 as they are already using the Margin Scheme? Thanks Bernice   

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25th Apr 2012 09:09

Concurrent use of s/h margin and global accounting

BMary83 wrote:

Hi Spidersong

 

They both break vehicles for resale to the general public and buy and sell second hand cars, for which they account for the VAT under the second hand car scheme.  On this basis, will they automatically be excluded from using the Global Scheme since I assume you can't operate under both schemes at the same time?

Hi Bernice,

Why do you assume you can't operate under both at once?, especially when the notice mentions the fact that if you break a vehicle for scrap you should remove it from your s/h stock book and transfer it to your global accounting records, you can hardly do that unless you're running both schemes.

There's no legal bar that I've ever found to running both schemes, so basically a trader such as you're dealing with could be running up to three stock books with different VAT accounting with stock moving between them,
1) Normal accounting on purchases where VAT has been charged to the trader i.e. new vehicles, some purchases from business sellers
2) s/h stock book for purchase and resale of whole s/h cars
3) global accounting stock book for bulk or low value purchases and scrapped car parts sold under £500

Some stock may move from 3 to 1 if the resale value of an individual part is over £500, or may move from 2 to 3 where a car purchased for resale is broken up for scrap. Of course this relies on the trader keeping accurate records to support 2 or 3 otherwise the sales will be treated as fully standard rated, and the schemes are optional so if the trader wants a simpler life they can go with charging VAT on most things they sell. But if they want a more profitable life then they can run the three stockbooks and keep a bit more back for themselves rather than the VAT man.

Thanks (1)
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18th Sep 2012 06:25

use of s/h and global accounting scheme

spidersong wrote:
BMary83 wrote:

Hi Spidersong

 

They both break vehicles for resale to the general public and buy and sell second hand cars, for which they account for the VAT under the second hand car scheme.  On this basis, will they automatically be excluded from using the Global Scheme since I assume you can't operate under both schemes at the same time?

Hi Bernice, Why do you assume you can't operate under both at once?, especially when the notice mentions the fact that if you break a vehicle for scrap you should remove it from your s/h stock book and transfer it to your global accounting records, you can hardly do that unless you're running both schemes. There's no legal bar that I've ever found to running both schemes, so basically a trader such as you're dealing with could be running up to three stock books with different VAT accounting with stock moving between them, 1) Normal accounting on purchases where VAT has been charged to the trader i.e. new vehicles, some purchases from business sellers 2) s/h stock book for purchase and resale of whole s/h cars 3) global accounting stock book for bulk or low value purchases and scrapped car parts sold under £500 Some stock may move from 3 to 1 if the resale value of an individual part is over £500, or may move from 2 to 3 where a car purchased for resale is broken up for scrap. Of course this relies on the trader keeping accurate records to support 2 or 3 otherwise the sales will be treated as fully standard rated, and the schemes are optional so if the trader wants a simpler life they can go with charging VAT on most things they sell. But if they want a more profitable life then they can run the three stockbooks and keep a bit more back for themselves rather than the VAT man.

 

Hi,

 

This is all fine, however here is another complexity. I am about to buy the car for parts, and has been investigating both schemes based on the notices from HMRC websites. I have been especially interested in the cars bought from auction. In the point 8.1 Purchase price of the mentioned notice, HMRC mentioned that the to be able to use the margin scheme purchase price should not include any VAT, The purchase price is defined as the hummer price of the item (in this case cars) plus any buyers premium. If I understand this correctly none of them should have VAT displayed. However I have seen the invoice from the auction house from which I would like to buy the asset, it lists the items on them own, it states that the car is sold under the second hand schema, so far so good, but it also lists the VAT against the buyers premium.

Here is the question, does it mean that I am not able to use the margin scheme on such asset, and by the extent the global accounting scheme if the main purpose of me buying this car will be to take it a part and sell for second hand parts?

The answer will be very much appreciated.

Kind regards

veryconfused

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By BMary83
24th Apr 2012 17:24

Let me put it another way.

It just occurred to me that I was probably over complicating things.  To put it another way, they charge VAT on all vatable supplies @ 20% however carry out additional calculations to ascertain the margin re: the sale of second hand cars, on which they also account for VAT @ 20%.

Thanks

 

Bernice

 

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By BMary83
25th Apr 2012 10:53

Much appreciated

Hi Spidersong

 

Thanks very much for the clarification on this, think it was my cynical view of HMRC that made me presume that you couldn't operate 2 schemes.

What are your thoughts on operating a flat rate scheme for a business like this?  I haven't looked into the subject in any detail but I recall on a post on a related thread for a business like this it would be a 7.5%.

Thanks

Bernice

 

 

 

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