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Is VAT payable on the sale of a van conversion to motorhome

Is VAT payable on the sale of a van conversion...

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My client's company converts used Vans (transit style VW's) into campervans/motorhomes.

VAT is shown and claimed on the purchase invoice.

Input vat is also being claimed on materials and overheads. 

Assuming the following applies: (per HMRC website)

Motor homes and motor caravans

Motor homes and motor caravans aren't considered to be cars for VAT purposes so long as certain features have been incorporated into the vehicle. These are:

  • a permanently installed sink and cooking facilities
  • seating arrangements so that diners can sit at the meal table
  • at least one bed which has a minimum length of 1.82 metres
  • a permanently installed fresh water tank with a minimum capacity of ten litres

These features have been agreed between HMRC and the Society of Motor Manufacturers and Traders.

 Would the client need to account for Output tax on:

the sale proceeds

the profit (as with the margin scheme)

OR

not at all?

i.e. is this as my client suggests a loophole?

Replies (11)

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By CJaneH
16th Jul 2014 13:51

Your client is trading therefore all sales subject to VAT .

If van purchased from private individual or non registered business I would use margin scheme.

If van purchased from VAT registered trader whole of sale proceeds subject to VAT.

My experience is accounts of second had caravan dealer.

 

 

 

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By spidersong
16th Jul 2014 13:52

What loophole???

Why would they not charge VAT? Are they hoping that because it's not a car they don't have to charge VAT, because if so then it would be worth pointing out to them that many, many things that aren't cars have VAT on them.

Basically the second hand scheme is for items purchased outside the VAT supply chain e.g. from non-VAT registered suppliers, so if "VAT is shown and claimed on the purchase invoice " then the vehicles aren't eligible for the s/h scheme and as such the trader would charge 20% on their supply.

Is the loophole that the trader considers that the sale will be zero rated? If so why; they don't meet the definitions of a caravan that can be zero rated, and it's not witihn the definition of someone 'constructing a new residential building', so there's no zero rating in play.

So it's not eligible for s/h scheme, it's not eligible for z/r so that leaves charging VAT at 20%.

Of course if the vehicles were purchased without VAT then they would be eligible for the s/h scheme assuming all the normal scheme conditions were met.

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By andrew55
16th Jul 2014 16:07

Agree with the above

I have a client in the same business who came up with the same argument for not charging VAT. As the above have said, the client is trading and therefore needs to charge VAT.

I agree with the comments about the margin scheme. My client mainly buys second hand vans from the public so we use this to good effect.

 

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By Old Greying Accountant
16th Jul 2014 22:03

My understandiing is thus ...

... at the point the conversion is complete Output VAT is paid on the value of the vehicle.

Presumably this will be the sale price of the vehicle so yes, effectively no VAT is paid on the sale, but only because it has already been paid on conversion!

As the sale price is fixed by the market you effectively have to absorb the VAT and on registering for VATprofit will fall - see this illustration which assumes labour is provided by the proprietor/owner-manager..

Unregistered if you buy a van for £2400 (£2000 plus £400 VAT), spend £1800 on parts (£1500 plus VAT) and sell it for £6000 you make a profit of £1800

If you register for VAT, your costs become £3500 (as VAT is reclaimed) but you pay VAT of £1000 on the conversion (£6000 x 100/120) and your profit is only £1500!

This is the conclusion I came to following my research and discussions with  the taxwise help line. If anyone can say it is wrong I will be pleased as I have a client in a similar position.

As said if it meets the crteria detailed to be a motorhome and not a car, then the same VAT treatment as commercial vehicles, as far as I can ascertain, would apply.

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Replying to Matrix:
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By Manwithnoname
17th Jul 2014 09:15

VAT on conversion

Old Greying Accountant wrote:

... at the point the conversion is complete Output VAT is paid on the value of the vehicle.

Presumably this will be the sale price of the vehicle so yes, effectively no VAT is paid on the sale, but only because it has already been paid on conversion!

That's interesting, so they have to self charge VAT following the conversion?  I've not heard of that before so will bear that in mind, thanks.

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By The VAT Doctor
16th Jul 2014 23:05

Adapted

HMRC are consulting on this due to widespread abuse, but it is at present still possible to zero rate an adapted motorhome for a disabled person as long as the adaptation is permanent.  At present, this can just be  an attachment to the wheel.  Best to read the guidance very carefully and potentially check HMRC are happy.

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By Steve Kesby
16th Jul 2014 23:25

VAT...

... it seems is now only chargeable on cars. Since a motor home with the requisite installations isn't a car, there's no need to charge VAT. :)

For the avoidance of doubt, that IS faulty logic.

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By Old Greying Accountant
16th Jul 2014 23:29

Yes Steve ...

... I am going to write to John Lewis in the morning and ask why they charged VAT on my fridge-freezer as it is patently not a car, and ask them to refund it please.

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By Old Greying Accountant
17th Jul 2014 10:42

I think that applies ...

... from commercial to car, assuming the criteria for motorhome met it would not be a car, but would still have VAT due I beleive, but HMRC website not easy to work out!

Have a look at VAT notice 700/64, 2.4 and 2.5

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_PublicNoticesAndInfoSheets&id=HMCE_CL_000090&propertyType=document#P39_2434

A motorhome is not a car, therefore usual VAT rules apply not car VAT rules, doesn't mean there is no VAT.

The key point from the HMRC website is here, the logical deduction is if you can reclaim the VAT on a motor home, VAT is charged on it. The whole point of the classification is for reclaiming VAT, not on whether it is charged. VAT is charged, it is just whether it is on the margin scheme or not. It you read the legislation, if you buy a commercial van with VAT on it (i.e. you get a VAT invoice), you charge VAT on the sales price, not on the margin that is

http://www.hmrc.gov.uk/vat/sectors/motors/what-is-car.htm

What is a car, commercial vehicle or motor home for VAT?

For VAT purposes it's important to know the difference between cars and other vehicles. This is because in most cases, VAT-registered businesses can't reclaim the VAT when they buy a car. But they may be able to reclaim the VAT when they buy a commercial vehicle, motorcycle or motor home.

 

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By Adeel1801
31st Mar 2021 15:18

Can we add the conversion costs to the purchase price for the purpose of calculating the margin and then calculate the vat payable ?
We basically put a selling price on our campervans based on a mark up which includes the conversion costs.

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Replying to Adeel1801:
Stepurhan
By stepurhan
31st Mar 2021 15:56

That is an appreciably different question you should pose separately.

It is rarely a good idea to revive an old thread, since tax laws change.

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