Taxation is one of the most important concepts to be understood for any good business. There are several ways through which anyone can understand and finish their taxation issues on a regular basis. VAT Margin Scheme is among the most popular schemes for vehicle sales and purchase agencies. This scheme applies to most of the vehicles in Great Britain. This paper will help you learn the way, the scheme works, and some critical points to keep note while using this scheme. The use of this scheme will provide benefit, but by some useful tax planning, you can increase the profits.
The most important concept to understand is the working of the scheme. If you have a second-hand vehicle, which was not charged with VAT, you can save money by using the second-hand margin scheme. Without the second-hand margin scheme, the seller will have to account for VAT on the full selling price for his vehicle. The benefit of the scheme could be clear that with its use, the seller would only have to account for the margin price. If the sales price is not more than the purchase price then there is no implication of VAT on the transaction, this means that a negative margin is transaction is not VATable.
There are some conditions for using the margin scheme which could not be ignored. The eligibility includes the ability of the vehicle to be suitable for further usage and been driven on the road for business or pleasure purposes. There are some sophisticated rules of record keeping which is essential for the scheme about the invoices and the stock records. The calculations are also required to be correctly made including the buying price, selling price and the margin calculations. The difference in other schemes and second-hand margin scheme of cars is that your margin and the profit margin could not be the same.
It is essential to understand the importance of timely decision making. If the vehicle is being sold on the standard VAT rules, then it is impossible to get back and apply on margin scheme. If you have multiple cars to sell, you can use the margin scheme on some of your vehicle sales and rest on standard VAT.
If you’re buying vehicles from online auctions and other resources then it is your responsibility to find out whether the car is VAT registered or not as well as the vehicle could be eligible to be sold under the margin scheme.
If you are deciding the car to be sold under the second-hand margin scheme, you need to know about the price on which the vehicle is purchased and sold. This would help you find the margin. For the calculation of the margin you have to calculate the gross margin initially:
Gross Margin = Purchase price – Sold price
Now for the VAT:
VAT = Gross Margin x 20/120
Note: You will have to be precise and follow HMRC guidance on the expenses that could be included in the purchase price as this can affect the Margin thereby incorrect VAT calculation.
The margin scheme is highly beneficial for businesses who sell used vehicles. The scheme helps in the increase of the gross profits (net off VAT). The proper calculations and proper understanding are necessary for the overall process to reduce any future problems.
For expert advice please contact us.