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9 May 2008

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VAT - Margin Scheme Records

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It is a condition of accounting for VAT only on the profit margin achieved on a car or other vehicle, that adequate records are maintained.

H M Revenue & Customs have issued Notice 718, which is periodically updated. This Notice has legal force, and contains the details of records required.

The dealer is required to keep: - a stock book; - purchases invoices; - sales invoices. There is a specific format for each of these, and they must contain certain information.

This information is available in Notice 718. The stock book is a record of each vehicle as it is purchased, and shows details of the vehicle, its purchase and sale prices, and the margin, and VAT amount. This can be maintained manually, or on a computer.

Since the margin scheme now extends to other types of vehicle, such as vans, quads, etc., it can include any vehicle. Remember that, if a dealer buys a vehicle with VAT charged on it, then he cannot use the margin scheme.

This may happen if he buys from a company fleet, or a lease company.

Where a dealer purchases a vehicle from a private person he will need to issue a purchase invoice, to evidence the purchase price. If he buys from a person in business, then the seller will provide the invoice.

Where a dealer buys a number of vehicles together, they can be shown on one invoice, but each must have a separate price. A dealer must always issue a sales invoice, whether he sells to a private person directly, to a finance company, or to another dealer. In the early days of VAT, motor dealers struggled with these requirements, and a number were assessed for VAT on the full selling price of the cars sold, since they had failed to maintain the proper records. This rule still applies!

Most motor dealers quickly become aware of these requirements. It is more often a problem when a business moves into car sales. In some cases, coach operators, and car hire firms begin to buy and sell cars for profit. It is this sort of situation where problems sometimes arise with respect to keeping proper records.

I read a decision of the VAT Tribunal concerning a case where HMRC assessed a car hire firm during 2006 for VAT in just such a circumstance.

Legally-compliant stationery is available from Lawdata.co.uk. And I should know, because I helped to design it!

Les Howard is a freelance VAT Consultant.
He has dealt largely with charities, and with the motor trade. He works in association with Elysian Associates Ltd.

January 2008 - Peterborough UK Community Website




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