VAT margin scheme

VAT margin scheme

Didn't find your answer?

Hello,

I have a client who is a second hand cars dealer and has nearly reached the VAT treshold. He will join the VAT margin scheme but the problem is that I have never had a client using that scheme. However. there is a lot of information in the HMRC web site but my biggest concern is what figure should be included in the P&L? Lets say he buys a car for 1500 and sells it for £2000. Under the scheme he will pay VAT on the margin of £500 - therefore VAT due will be £83.33. What about the amount which should be reported as a turnover? Will that be £2000 or £1916.67 (£2000- £83.33)?

I would highly appreciate your answer

Replies (12)

Please login or register to join the discussion.

RLI
By lionofludesch
03rd Mar 2015 10:38

Company ?

If he's a company, it must be £1917

If he's a sole trader, you can choose.  HMRC will accept VAT inclusive accounts, though VAT elusive is the norm.

Thanks (1)
avatar
By Jeeves
03rd Mar 2015 10:56

Neither

My view (assuming that you are producing a profit and loss excluding VAT) is that the sales figure would be £1,666.65 and the purchases £1,250.

Thanks (1)
Replying to paul.benny:
RLI
By lionofludesch
03rd Mar 2015 11:14

Strongly disagree

Jeeves wrote:

My view (assuming that you are producing a profit and loss excluding VAT) is that the sales figure would be £1,666.65 and the purchases £1,250.

I strongly disagree with that.  To say that the purchase price is £1250 + VAT would be to rewrite history.

If he car remained unsold, would you include it in stock at £1250? 

No.

Absolutely not.

 

Thanks (2)
Replying to DJKL:
VNF
By vfilipova
03rd Mar 2015 11:26

margine scheme rules

lionofludesch wrote:

Jeeves wrote:

My view (assuming that you are producing a profit and loss excluding VAT) is that the sales figure would be £1,666.65 and the purchases £1,250.

I strongly disagree with that.  To say that the purchase price is £1250 + VAT would be to rewrite history.

If he car remained unsold, would you include it in stock at £1250? 

No.

Absolutely not.

 

Under the VAT Margin scheme you must not calculate 20% on your purchase price. The input VAT is calulated on the marging between purchase and sales price £2000 - £1500=£500/6 therefore £83.33 due for VAT purposes. Why would I include £1250 as a purchase price?

Thanks (0)
Replying to David Heaton:
RLI
By lionofludesch
03rd Mar 2015 11:37

Correct

vfilipova wrote:

lionofludesch wrote:

Jeeves wrote:

My view (assuming that you are producing a profit and loss excluding VAT) is that the sales figure would be £1,666.65 and the purchases £1,250.

I strongly disagree with that.  To say that the purchase price is £1250 + VAT would be to rewrite history.

If he car remained unsold, would you include it in stock at £1250? 

No.

Absolutely not.

 

Under the VAT Margin scheme you must not calculate 20% on your purchase price. The input VAT is calulated on the margin between purchase and sales price £2000 - £1500=£500/6 therefore £83.33 due for VAT purposes. Why would I include £1250 as a purchase price?

I've no idea why anyone would do that.

Thanks (0)
RLI
By lionofludesch
03rd Mar 2015 11:23

No

If you do VAT inclusive figures, his VAT payments to HMRC are an expense.  Get the creditor right and it won't affect profit.

As I said, not the norm but it is an option.

Thanks (1)
avatar
By stephenkendrew
03rd Mar 2015 11:26

Agree with lion

@vfilipova

Either sales are £1,917 (which would be my preference); or

sales are £2,000 and the VAT of £83 would be an expense.

Either way, it's the same profit.

Thanks (1)
Replying to RedFive:
RLI
By lionofludesch
03rd Mar 2015 11:58

No no no

vfilipova wrote:

stephenkendrew wrote:

@vfilipova

Either sales are £1,917 (which would be my preference); or

sales are £2,000 and the VAT of £83 would be an expense.

Either way, it's the same profit.

Yes, thanks. An in both ways expenses are reported as net amounts (VAT excluded) aren't they?

No, they're not.  "VAT inclusive accounts" means including VAT.

Nothing complicated about this.

Thanks (1)
VNF
By vfilipova
03rd Mar 2015 11:55

Thank you very much for clarifying this for me

Thanks (0)
avatar
By DMGbus
03rd Mar 2015 13:17

The correct way...

Turnover ex VAT is £ 1,917 for box 6 of the VAT return (Sale price £ 2,000 minus output tax £ 83 due on the margin).

Most commonly businesses report income and expenditure in their annual accounts net of VAT so turnover per accounts figure would be £ 1,917.    Very, very rarely do I ever see accounts where everything is gross and the VAT payments are an expense in the P&L account - it's technically OK to do it that way but not the way I'd personally wish to  prepare accounts.

I have dealt with used car dealer (and antique dealer) accounts and VAT returns for several decades now, so if I've got it wrong I'd be very very surprised after several VAT inspections over the years.  

 

Thanks (1)
avatar
By Anne Robinson
03rd Mar 2015 21:40

DMGbus If you have it incorrect then I have been doing it wrong for years as well.
A common error I see is people putting the profit margin less vat into the vat return box 6 rather than the selling price less vat

Thanks (0)
avatar
By DMGbus
03rd Mar 2015 22:22

Box 6 = turnover

I have always put turnover in box 6, not the margin.

Box 6 is value of supplies.  Value of supplies = sales value minus VAT included.

Margin is just an arithmetic step in ascertaining box 1 figure.

VAT notice 700/12 paragraph 4.4 supports what I have been doing for years...

" Box 6 Total value of sales
Include the full selling price of all eligible goods sold in the period, less any VAT due on the margin
"

The only time margin minus VAT would go in box 6 of a VAT return that I deal with is if the goods were sold on behalf of the owner of the goods, ie. margin = commission = turnover in those narrowly defined circumstances.

Thanks (1)