Margin VAT scheme for second-hand vehicles

Good day. I hope this is a question that I can ask in here for some assistance, if not please let me know and if you could direct me to the correct forum for this. The margin VAT scheme for second-hand vehicles is used to account for VAT on the difference between the price you pay for a second-hand vehicle and the price you sell it for, instead of the full selling price of each vehicle. The VAT is calculated by deducting the purchase price from the selling price to work out the gross margin, then multiplying the gross margin by 1/6. HMRC guidance explains the purchase price as everything you pay for the vehicle and the selling price as everything you receive for the vehicle, including payments for incidental expenses directly linked to the sale. Where a second-hand car dealer purchases a second-hand vehicle, repairs the vehicle to make it saleable, can the cost of repairing the vehicle be considered as incidental expenses directly linked to the sale? Can these costs be included as part of the selling price when calculating the margin? If so, I assume that these costs being included will reduce the selling price? Please let me know. Thank you.

Hi,

Please see the guidance below which explains how you calculate the purchase price and the selling price and the cost of any repairs done to the vehicle:

Using the VAT margin scheme for second-hand vehicles

Thank you.

The guidance does not give an explanation for the query I have asked. It states that the purchase price does not include the cost of any repairs to the vehicle and the selling price is everything you receive for the vehicle including payments for incidental expenses linked to the sale. My query is, can the cost of repairs done to the vehicle in bringing it to sale be considered an incidental expense? I have read the guidance and everything that I can find on the scheme and there's nothing on this. Example Purchase Price £100 Repairs to vehicle £200 Selling Price £500 Which of the following would be the Margin VAT calculation (£500 - £200) - £100) * 1/6 Does the repair costs reduce the selling price? or (£500 - £100) * 1/6 Does the repair costs get excluded from the calculation? Thank you

Hi,

The cost of the repairs to the vehicle cannot be added on to the purchase price or deducted from the selling price.

In your example the margin would be £400 as that is the difference between the purchase and selling price.

The repair of the vehicle is an overhead so you would be entitled to the reovery of input tax on the service subject to the normal rules.

You can see guidance here:

Introduction to input tax

Thank you.