Margin scheme - please help me to understand it fully!

[Jax]

I am getting very confused about the Margin Scheme. I should be grateful if someone would tell me if I have this right.

As I understand it (in respect of a 2nd hand car dealer) you take the purchase price of the car and deduct it from the sales price of the car then calculate the VAT ammount of the margin ie the margin is actually VAT inclusive.

You CANNOT deduct any expenses incurred in preparing the vehicle for sale, MOT, repairs etc from the margin.

You CAN recover VAT charged by the car auction on the service they provided. This would be recovered as an overhead.

You CAN recover VAT on expenses incurred ie parts and repairs again as an overhead.

The sales invoice must state that it is issued under the global accounting scheme.

The purchase invoice must state that it is issued under the global accounting scheme.

The sales invoice is issued with the total sales price only showing so even if a taxi company purchased the vehicle for business use they would not be able to recover the VAT they have been charged.

To me this seems like a hidden tax on the unwary buyer. VAT has been paid in full at time of initial purchase so it seems wrong to charge a hidden amount on the margin.

I understand that if the VAT was shown the buyer would quickly realise the seller's margin so it is impractical in that respect, but I still can't get my head around charging VAT that cannot be recovered!

Please help me with my confusion! :|

 

[KidsBeeHappy]

I use the margin scheme with relation to secondhand goods. The principles are the same. The VAT isn't a tax on the car, it's a tax on your profits.

VAT is basically never recoverable on cars, customs will always find a "personal use" element.

Normally VAT is paid on the full selling price, and then a business recovers that as input vat, and they then use the thing that they've just bought to generate a profit, which they then pay output vat on. So, in essense, the business is paying VAT on it's profits.

With the margin scheme, you are only paying VAT on your profit element. It's the same end result, just a different way of getting there.

 

[Jax]

Thank you for your reply, the scheme now makes more sense!

I should still be grateful if someone would tell me if I have the rest of it right and if I am missing anything!

 

[KidsBeeHappy]

As I understand it (in respect of a 2nd hand car dealer) you take the purchase price of the car and deduct it from the sales price of the car then calculate the VAT ammount of the margin ie the margin is actually VAT inclusive.

Your output vat is 7/47 of the sales price less the purchase price.

You CANNOT deduct any expenses incurred in preparing the vehicle for sale, MOT, repairs etc from the margin. You CAN recover VAT on expenses incurred ie parts and repairs again as an overhead.

Any input vat incurred on parts, repairs, etc then you can recover as part of your normal input vat. The expenses are your inputs.

You CAN recover VAT charged by the car auction on the service they provided. This would be recovered as an overhead.

Your sales price is the gross amount vehicles are sold for at auction. this goes into your margin scheme. Any auction expenses are inputs, and any input vat can be recovered in the normal way.

The sales invoice must state that it is issued under the global accounting scheme.

Yep, and a bit more, go to the booklet and get the exact wording, but you also need to state that vat cannot be recovered on this invoice, or something like that.

The purchase invoice must state that it is issued under the global accounting scheme.

Yep, same as above.

The sales invoice is issued with the total sales price only.

Yes.

 

[Jax]

Boxby, thank you so much. I appreciate your time in helping me.