Using the VAT margin scheme for second-hand vehicles
Find out how to use a margin scheme to account for VAT if you buy or sell second-hand vehicles (VAT Notice 718/1).
There are different rules if you buy or sell second-hand vehicles under a margin scheme.
You can use a margin scheme 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.
When you can use the scheme
You can use the scheme if you buy or sell eligible second-hand vehicles.
A vehicle is second-hand when it has been driven on the road for business or pleasure purposes or is suitable for further use.
When you cannot use the scheme
You cannot use the scheme for:
- new vehicles
- vehicles imported into the UK, including vehicles collected on your behalf
- any vehicle purchased on an invoice which shows VAT separately
- category A and B write-off vehicles, or any vehicle which is subject to the End Of Life Directive
- new means of transport purchased from EU countries into Northern Ireland
- vehicles bought from registered dealers in EU countries supplied to Northern Ireland which have not been supplied under a margin scheme
- vehicles already sold under the normal VAT rules
- vehicles that you bought and reclaimed, or were entitled to reclaim VAT, including:
- import VAT on vehicles purchased from outside the UK
- acquisition tax chargeable in Northern Ireland on purchases from dealers in EU countries
- vehicles showing VAT has been charged on the purchase invoice
Check the steps you need to take next
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Check the rules if you’re buying a second-hand vehicle.
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Check the rules if you’re selling a second-hand vehicle.
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Use the scheme rules to work out the margin.
How to work out the margin
To work out the VAT due, you should:
- work out the purchase price and selling price
- take away the purchase price from the selling price to work out the gross margin
- multiply the gross margin by 1/6
If you buy or sell second-hand vehicles you must check if other products and circumstances affect your margin scheme calculation.
The VAT is due on the difference between what you paid for the vehicle and what you sold it for, not the overall profit you have made on it.
Purchase price
The purchase price is everything you pay for the vehicle and follows the same rules as the selling price.
It does not include the cost of bringing the vehicle to sale, any repairs, refurbishment, accessories or your business overheads.
Selling price
The selling price is everything you receive for the vehicle, whether from the buyer or a third party, including payments for:
- incidental expenses directly linked to the sale, for example, where you have had to pay for an MOT to make the vehicle saleable
- accessories fitted before the sale
Disbursements do not form part of the selling price. These should be accounted for separately outside the scheme.
If you use an agent
If you use an agent, how they charge their services to you will affect your final selling price.
They will either:
- retain a percentage of the selling price
- make a separate charge to you
You should check with your agent to make sure you are calculating your selling price in the correct way.
Records you need to keep
You must keep normal VAT records when you use the margin scheme.
You must also keep:
- a stock book that tracks each item sold under the margin scheme individually
- copies of purchase and sales invoices for all items
You must include any goods you buy or sell using a margin scheme on your VAT return.
Records you must keep for goods on sale or return
If your stock includes vehicles supplied to you on a sale or return basis, you must also include the following details in your stockbook:
- the date of transfer of the vehicle
- the address of the dealer or person transferring the vehicle
- the date of sale or return
If any vehicles are removed from your stock on a sale or return basis to another dealer’s premises, you should note your stock record with the date and details of the dealer to whom you have transferred the vehicles.
If you sell a vehicle on behalf of a third party, and you issue an invoice for that vehicle in your own name, you are acting as an agent for VAT purposes and you must account for any output tax on the sale.
Invoices in foreign currencies
If you buy or sell an eligible vehicle in a foreign currency, you must convert the price into sterling using the current exchange rate to work out your margin.
If the sales invoice covers more than one vehicle, for each vehicle you must:
- show the price in both foreign currency and sterling
- enter the sterling amounts in your stock record
If, however, you are selling vehicles bought as one lot, you only need to show a total foreign currency and sterling value for the lot.
Further information
You must show any goods you buy or sell using a margin scheme on your VAT return.