The VAT Margin Scheme Explained for Used Car Dealers
For used car dealers, the VAT margin scheme is essential.
It is also often misunderstood.
By Jade Stenner, Accountant
For used car dealers, the VAT margin scheme is essential, and it is also one of the most misunderstood parts of motor trade accounting.
How it works
Normally VAT is charged on the full sale price. Under the margin scheme, you pay VAT only on your margin, the difference between what you paid for an eligible second-hand vehicle and what you sold it for. The VAT is 1/6 of that margin.
Why it matters
Much of your stock is bought from private individuals, where there is no VAT to reclaim. Without the margin scheme you would be taxed on the full resale price, which would wipe out much of your profit. The scheme keeps the tax proportionate to what you actually make.
The rules and the traps
You must keep a proper stock book, use the correct invoices, and only include eligible vehicles. The common mistakes are missing stock book records, muddling margin scheme and standard-rated sales, and getting part-exchanges wrong.
General guidance; the detail matters, so we will check your specific position.
We know the motor trade inside out, so we keep your margin scheme records clean and your VAT right.
