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Is Margin VAT corporation taxable income?

Margin VAT on Used Cars

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I have a question around the double entry for the margin VAT on second hand car sales, and I was wondering if you could confirm if the below is correct or not:

A second hand car is purchased by a UK VAT registered private limited company, from a UK supplier for £2,500 (No VAT), by bank transfer:

Dr Inventory £2,500 (Balance Sheet)
  Cr Bank £2,500 (Balance Sheet)

This same second hand car is then sold by the UK VAT registered private limited company to a retail customer for £3,700 (No VAT), by Card Payment:

Dr Cost of Sales £2,500 (P&L)
  Cr Inventory £2,500 (Balance Sheet)
Dr Bank £3,700 (Balance Sheet)
  Cr Turnover £3,700 (P&L)
On the VAT return for the quarter, an entry would then be made in box 1, for the Margin VAT payable of £200 (i.e. £3,700 minus £2,500 is £1,200 divided by 6 is £200), and this would then be paid by bank transfer:

Dr VAT Liability £200 (Balance Sheet)
  Cr Bank £200 (Balance Sheet)

Which is fine, but should the following entries then be made to remove the Margin VAT from the P&L:

Dr Turnover £200 (P&L)
  Cr VAT Liability £200 (Balance Sheet)

And by virtue of the above entry, the profit figure upon which corporation tax would be calculated would also be reduced by £200?
So on this transaction, corporation tax payable would be £190? (i.e. £3,700 sale price MINUS £2,500 purchase price MINUS £200 margin VAT, leaves a taxable profit of £1,000 at a rate of 19%)

Any help on the appropriateness of the Margin VAT P&L adjustment, and how I have then calculated the corporation tax payable would be much appreciated

Replies (2)

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By lionofludesch
15th Jul 2021 19:49

Dr bank £3700

Cr sales £3500
Cr Output tax £200

would be the entries I'd be making.

Are you a DIYer ?

If so, I'd consider carefully whether I should be.

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By jcace
15th Jul 2021 21:01

All those calculations look good.

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