Trading in a company car - Invoicing and VAT?

Trading in a company car - Invoicing and VAT?

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Hi all,

I am just checking the treatment of a company car we traded in against a new company car on an HP agreement.

We traded in the old company car for £6k discount on the price of the new car. Both cars are used by a sales rep for business and personal use so input VAT has not been reclaimed in either purchase.

Is the correct treatment to raise an invoice for £6k on a VAT exempt basis and send this to the HP company showing nil balance to be paid on the invoice as they have given it as a deduction against the new car? This is how I interpret HMRC notice 700/64 (July 2012), section 7.2.

I know this would work okay in my accounting system (Full cost of car Dr in fixed assets, Cr full cost less £6k as starting lease liability, and the remaining £6k Cr would end up as Income in P&L on disposal, no debtor for the invoice as it would have been matched against the deposit given on the lease agreement) but having read a few things about how the HP company would account for the sale it has just made me wonder whether they are expecting me to invoice them in this way?

Hopefully those of you who have done this before can offer a little reassurance.

All the best,

David.

Replies (2)

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By johngroganjga
21st May 2013 13:50

Well the double entries are straightforward.  As you say:

Debit the cost of the new car with the opening HP balance plus the £6K part ex allowance;Credit the part-ex allowance to the fixed asset disposal account and debit the NBV of the old car to that same account.  The balance on this account is the profit or loss on sale, to go to your profit and loss account;Then off you go with accounting for depreciation on the new car and interest on the HP liability.

You don't need to issue a sales invoice for the disposal unless the dealer or the HP company ask for one.  If you do, use it to document the entry in the disposals account above.

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chips_at_mattersey
By Les Howard
21st May 2013 16:28

.. and the VAT is:

Since you have not reclaimed VAT (correctly) your invoice shows no VAT. (It is not technically VAT exempt!) The key is that you do not itemise VAT on the sales invoice.

You may need to cross-refer to the sales invoice for the new car from the dealer.

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