Accounting for selling vehicle not owned by trader

Sole Trader - Selling motorbikes on behalf of others, how to treat transaction.

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Hi Folks,

My client is a sole trader, servicing motorbikes and making custom builds bikes.  He has recently taken to selling motorbikes on behalf of others and he is VAT registered.  He is not purchasing the vehicles from the owners, just charging commission to advertise and sell them. 

At present, customers pay the whole purchase price through his business, which is currently posted onto the accounts software (Xero) as a zero rated sale and the payment to the owner posted as a zero rated cost of sale with the difference being posted as vatable sales commission.  I don't think this is the correct way to treat the transaction, as it overinflates both sales and cost of sales and the asset never belongs to my client.

My thoughts were that we should create a control account on the balance sheet. The value of sale and sellers portion would be posted there as zero VAT and the commission invoice would also be posted there with VAT, so effectively the account contras down.

Is there a better way of treating the transactions?

Replies (6)

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By Paul Crowley
21st May 2024 15:54

It is critical that the sales of, and purchase of, do not get added to net outputs and inputs
Trader should be invoicing for the commission.
This is really VAT return management. The accountant would fix the issues when preparing the accounts.

Thanks (1)
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By Bobbo
21st May 2024 15:58

Assuming this is genuinely your client selling as agent, then as well as using a balance sheet control account I would suggest posting the sale and seller's portion as 'no VAT' not 'zero VAT' as otherwise you will still be inflating your client's VAT return boxes 6 and 7 by amounts which are not their sales and purchases.

The commission invoice should of course go to sales, though you may to do some playing about to offset the debtor in the customer ledger against the control account balance. Though presumably you're already doing this under the current method.

Thanks (2)
Replying to Bobbo:
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By FactChecker
21st May 2024 16:15

"Assuming this is genuinely your client selling as agent" is the really important aspect ... Jason has written copious responses to people who seem to assume that if it suits them to treat a verbal agreement as though it were an Agency Agreement, then everything's fine.
I'll assume that OP, as a long-term member, is of course aware of this ... but many others appear to be in the dark on this aspect - and should ensure there is proper documentary evidence.
Only then can correct treatment (and entry in VAT returns) of each transaction be considered.

Thanks (4)
RLI
By lionofludesch
22nd May 2024 07:44

Margin scheme might be easier.

But this is another Who is Supplying What to Whom? case.

Get some decent paperwork to evidence the transaction.

Thanks (1)
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By Tax Dragon
22nd May 2024 10:11

Are there recording and/or reporting obligations - or other regulations - if money is held on behalf of someone else? There are for solicitors, accountants, banks and ordinary citizens. There are for landlords taking deposits. Etc.

Thanks (2)
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By Mr_awol
22nd May 2024 10:59

What kind of invoice (if any) does the buyer get? Who do they think they are buying it from? Is there any sort of warranty, etc? Where are the vehicles kept, who (if anyone) is insuring them, and what happens if they get stolen or burst into flames?

Essentially, is this actually an agency sale or is he just taking the vehicles on sale or return?

Thanks (1)