Vat Treatment to Second Hand Car Dealership
Hello
I am about to take on a client and provide Sage book keeping services for his second hand car dealership. I wonder if anyone can give advice on the book keeping aspect of this type of business. I have provided services for a repair garage before, but wanted to be sure footed before I start in this type of business.
If he buys a car for say £4,000 and sells for £5,500, is the Vat to be calculated on the sale, just against the £1,500 gross profit made on the re-sale? Also if any repairs are carried out at say £250.00 before sale, does this mean that the figure becomes £1,250 ?
I understand that there is a product called 'Dragon' that the car dealership can use for its purchases and sales of vehicles. Although the prospective client does not use this, nor have I seen it before.
The previous accountant has not used sage, and the ownder seems to have spreadsheets and all sorts of methods running at once. I would like to get his paperwork into order and have a uniform system, that he and I can look at and understand together.
Does anyone have this sort of client, who can give me some helpful advice.
Many Thanks
Carolynne
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Latest questions on 
Scheming
Before you do anything read ALL the HMRC info on special schemes, especially used cars:
http://www.hmrc.gov.uk/vat/sectors/motors/buying-cars.htm
Records maintained have to meet HMRC guidelines, including the Stockbook (or equivalent)
Second hand car VAT and Sage
The answer to your specific question is that the VAT would be payable on the difference between the buying and the selling price - the costs of preparing / repairing the car between the date of purchase and the date of sale are not adjusted for. This is where it gets complicated because if an accessory is also sold (radio, sat nav etc) then the VAT on that sale is at standard rate.
Then you have qualifying cars and so on; so I couldn't agree more with the first commenter - you do need to have a clear understanding of the VAT rules of the second hand car scheme to take on this sort of client.
You may want to check out Sage's website as they do have quite a useful guide as to how to do the accounting for the second hand scheme.
You might also want to look at how the current stock book is being kept as there may be some improvements you can make - but don't plan to incorporate the stock book into Sage as you could invest a lot of effort without much reward
Dragon 2000 is a stand alone program which has a module which integrates with Sage 50 - I have not used it or know anyone that has and you could need to look at cost and benefit as it would add another application into the mix that your potential client already has
Extra Admin
Assuming that the garage is operating the Marginal VAT scheme, you have to check whether the car being sold by the garage is a "marginal" or qualifiying", to determine whether VAT is due on the "margin" or the entire car.
The garage must keep stock records (this is probably the spreadsheet), as that's a condition of the Margin scheme.
Sage does not handle the margin scheme well and so it will not calculate it for you. Therefore, you have to effectively adjust for the scheme outside of Sage and only put the correct output VAT into Sage. (Hence the need for spreadsheet/Dragon/some other system to do this calculation and keep it under control). As ChrisDL said, it's almost impossible to keep the stock records in Sage, without giving yourself lots of additional manual work, which would make the exercise pointless, which again leads to the need for a spreadsheet/Dragon/some other system.
When I did it, the dealership had an online stock book and sales invoicing system, the data from which, I used to maintain a spreadsheet calculating the VAT correctly (because of taking into account the "extras" etc...)
Effectively, the sales ledger was maintained outside Sage and was only brought into Sage by means of a journal.
Dragon will work best if the dealership are using it themselves, otherwise some (may be even most!) of the funtionality will be wasted (and therefore the cost benefit). (Which is why I used a spreadsheet in the end, as it was adaptable to the existing system that my client used.
If the dealership does not keep good records (and doesn't show any inclination to do so), doing the VAT return will be a bookkeeping nightmare.
Viv X
Second Hand Car Dealership
Just to say thank you to all who have responded, you have given good advice, and I really appreciate your giving the time up to respond.
-- Carolynne