VAT on Second Hand Car Parts

[Scott P]

Hi,

My brother owns a company that sells second hand car parts on eBay and car forums.

He buys the cars and parts from private individuals or non-vat registered businesses. Most of the time he won't get proper invoices as breakers yards tend to be shy about giving these out.

His turnover is getting very close to the £73k threshold so we need to look at registration.

What would be the best scheme for him to go on?

He does not pay VAT on any expenses or anything like that, so I don't think the standard scheme would be viable for him.

Any advice will be appreciated.

Thanks

 

[talkinpeace]

unless he knows he'll be able to get up to £100k PDQ, he's better staying just below the threshold

 

[Scott P]

unless he knows he'll be able to get up to £100k PDQ, he's better staying just below the threshold

Excuse my lack of terminology, what does PDQ mean?

We do the accounts every month so I don't think we can use the ignorance card.

It has turned over 60k in 5 months since it was incorporated, so I am expecting it to hit over £70k by the end of the month.

Cheers

 

[David Griffiths]

PDQ = pretty damn quick

As he is trading in second hand items, he can use a margin scheme when he registers. That means that he only accounts for VAT on his profit margin not the gross selling price. That is usually a significant saving

Full details are given in this notice, and pay particular attention to the record keeping requirements

 

[Scott P]

Hi David,

Even if we go on £10k a month, he is still going to hit £100k within the year, does that qualify as PDQ? lol

I have read the link you posted about the Marginal Scheme previously, but this paragraph made me unsure:

'Eligible goods' include the following:

• Second-hand goods. Goods that can still be used, or which could be used after repair. They include most goods that are commonly called 'second hand' and include motor cars - but not vehicles sold for scrap or parts.

He might buy a joblot of parts for say £1000 (with or without a proper invoice, dependant on who it is from) and then sell the parts individually for say £1500.
He might buy a full car and remove the parts from that.

Will this still qualify? How would we show this in the accounts?

I assume we could just minus the 'cost of sales' from 'sales income' to come up with the VATable amount?

If on the marginal scheme, will the sales invoices show VAT @ 20%? He does sell to some VAT registered garages so having an invoice would be beneficial.

Thanks

Scott

 

[Bob]

If his turnover will be less than £150K, could be worth his while looking at the Flat Rate Scheme :|

 

[Scott P]

Hi David,

Even if we go on £10k a month, he is still going to hit £100k within the year, does that qualify as PDQ? lol

I have read the link you posted about the Marginal Scheme previously, but this paragraph made me unsure:


'Eligible goods' include the following:

• Second-hand goods. Goods that can still be used, or which could be used after repair. They include most goods that are commonly called 'second hand' and include motor cars - but not vehicles sold for scrap or parts.

He might buy a joblot of parts for say £1000 (with or without a proper invoice, dependant on who it is from) and then sell the parts individually for say £1500.
He might buy a full car and remove the parts from that.

Will this still qualify? How would we show this in the accounts?

I assume we could just minus the 'cost of sales' from 'sales income' to come up with the VATable amount?

If on the marginal scheme, will the sales invoices show VAT @ 20%? He does sell to some VAT registered garages so having an invoice would be beneficial.

Thanks

Scott

Can anyone help with this??

I have looked at the Flat Rate Scheme and thought this would be best for us, but then I have been told the marginal scheme would work better.

Thanks

Scott

 

[Esk247]

Can you phone up HMRC and ask an advisor? They should be able to make it clear and provide any paperwork that you require if you think you're going to hit the threshold pretty quick.

It's very hard to say on a forum as HMRC change the rules quite often.

 

[Mitchells Bristol]

Hello there

Based on the information you have provided in your original post, I don't believe the second hand goods scheme is available to you. As you are selling second hand parts, and not second hand cars, then these items will be fully VATable once you hit the threshold.

The flat rate scheme is probably going to be the biggest help to you - scanning down the list of flat rates, you are probably going to fall within the 7.5% bracket for retailing.

So if a part is sold for £100, you will charge 20% VAT so the total charge to the customer will be £120. You will then account for VAT at 7.5% of £120 = £9.

As the flat rate gives you a lower percentage, you can then decide whether you are able to pass this onto your customers or whether you absorb some or all of it yourself.

Hope this is of some help - but as suggested above it would be advisable to get some professional help with this.

 

[David Griffiths]

I don't see anything in there to prevent the use of a margin scheme.

The scheme applies to "motor vehicles - but not vehicles sold for scrap or parts" That doesn't mean that second hand parts are excluded.

It would apply where a full car is purchased and the parts removed. There are two options there - either exclude those goods from the margin schme, or don't buy full cars - allow someone else to remove the parts

 

[Scott P]

Hello there

Based on the information you have provided in your original post, I don't believe the second hand goods scheme is available to you. As you are selling second hand parts, and not second hand cars, then these items will be fully VATable once you hit the threshold.

The flat rate scheme is probably going to be the biggest help to you - scanning down the list of flat rates, you are probably going to fall within the 7.5% bracket for retailing.

So if a part is sold for £100, you will charge 20% VAT so the total charge to the customer will be £120. You will then account for VAT at 7.5% of £120 = £9.

As the flat rate gives you a lower percentage, you can then decide whether you are able to pass this onto your customers or whether you absorb some or all of it yourself.

Hope this is of some help - but as suggested above it would be advisable to get some professional help with this.

Interesting, for some reason I had it in my head that he would have to pay 13% (can't remember the sector), 7.5% seems much more reasonable, as far as tax goes!!

I think he would have to swallow the 7.5% as he already has prices set by the market.

So from what I understand with the FRS, I just add up the sales income and pay 7.5% per quarter in VAT. Do I also have to include Exports within that figure as well (these are only a small part of the business, but just needed to see if I should seperate them in the accounts)

Thanks very much for you help!

I don't see anything in there to prevent the use of a margin scheme.

The scheme applies to "motor vehicles - but not vehicles sold for scrap or parts" That doesn't mean that second hand parts are excluded.

It would apply where a full car is purchased and the parts removed. There are two options there - either exclude those goods from the margin schme, or don't buy full cars - allow someone else to remove the parts

Thanks for the help David. From all the reading I have done over the last few days, the margin scheme would work perfectly if he just bought and sold parts, but since he also buys the cars every now and then, it could end up being an accounting nightmare.

The FRS looks like a bit easier to manage.

If I am overlooking anything please let me know!

Thanks again

Scott

 

[Mitchells Bristol]

Yes - you just apply the appropriate flat rate percentage to your gross sales.

In relation to your exports it does depend to which country you are exporting. You may find that you are having to account for VAT under the flat rate scheme for sales that would otherwise be zero-rated.

You have a number of fairly complex VAT issues, and making a wrong decision based on snippets of advice from a forum could end up costing you. I woud highly recommend you speak to your / an accountant on this one and explain fully how the business will be operating, what percentage of sales is cars, what percentage is parts, what percentage of sales is likely to be exports, and who is it exported to etc. Armed with all these facts, you can then get some written advice from the accountant on how best to proceed. It will cost you, but hopefully less than a wrong move at this point!

 

[RevaxMedia]

Can you phone up HMRC and ask an advisor? They should be able to make it clear and provide any paperwork that you require if you think you're going to hit the threshold pretty quick.

It's very hard to say on a forum as HMRC change the rules quite often.

If in doubt just give them a ring, for people who rob you in daylight they do offer pretty good advice.

 

[Scott P]

Thanks for all the help. I will have a word with my accountant to see what we can do. I always like to read up on the subjects first, once you know the score its much easier to ask the right questions!

Thanks

Scott