Buying second-hand vehicles using a VAT margin scheme
If you buy second-hand vehicles, find out how to use a margin scheme to account for VAT (VAT Notice 718/1).
There are different rules if you buy second-hand vehicles to sell under a margin scheme.
When you can use the scheme
You can use the scheme for second-hand vehicles you have bought from one of the following:
- private individuals
- businesses not registered for VAT
- dealers or businesses who were unable to reclaim the input VAT on purchase
- VAT-registered dealers
- Motability, for which you have an invoice showing VAT charged at the zero rate
In Northern Ireland, you can also use the scheme for second-hand vehicles you have bought from VAT-registered dealers in EU member states, if supplied to you under a margin scheme.
Buying vehicles under the scheme
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Check the vehicle is eligible.
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Get a purchase invoice and enter the details in your stock book.
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Check for any linked insurance products and warranties.
Buying from an auction
You must check the vehicle is eligible for onward sale under the scheme. You should be able to find this in the auctioneer’s sales catalogue.
If the auctioneer charges VAT separately on the hammer price of a vehicle you buy, you will not be able to use the margin scheme or global accounting for your onward sale.
When you buy a vehicle at auction, you will usually be charged an indemnity fee. You must not include this in your purchase price calculations for the margin scheme.
Work out the purchase price
Your purchase price will be the hammer price of the vehicle plus charges for services.
The invoice you get from the auctioneer will itemise, for each lot you have bought, the hammer price of the goods and any charges for services (for example, buyer’s premium).
These charges must not show VAT separately.
This will be your purchase price for the purposes of the margin scheme or global accounting, and you must show this amount in your stockbook. It should be clearly identified on the invoice you get from the auctioneer.
If the auctioneer bills you for any other services, and charges VAT on them separately, you can reclaim the VAT under the normal rules. You must not add those charges to your own margin scheme purchase price.
If you are in any doubt about what your purchase price should be for a vehicle you have bought at auction, you should check with the auctioneer.
Buying from an online auction site
You must find out if the:
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seller is VAT registered
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vehicle is eligible to be sold under the margin scheme
Buying from an insurance company or finance house
If you buy an eligible vehicle as a result of an insurance claim, or a finance house which has repossessed it, you will not be charged VAT if both:
- the vehicle is sold on to you in exactly the same state
- it was obtained by the insurance company or finance house from a person who would not have charged VAT on its supply (for example, a private individual)
You can resell the vehicle using the margin scheme if it is eligible.
Further information
You must show any goods you buy or sell using a margin scheme on your VAT return.