Dealer question - Pre-registered cars

[GAmbrose]

Is it true that Dealers who buy in a bunch of cars and pre-register them don't charge VAT on?

Somebody is trying to tell me that they often "swallow" the VAT when they sell a pre-registered car to a customer. I can't see how they can invoice you for a car and not charge VAT when they have had to pay the VAT when buying a car from the manufacturer.

This is what I think he is saying

A dealer buys a car from the manufacturer for £20,000 inc VAT.

They pre-register it.

A customer comes along and they sell it to them for £22,000 Net.

They don't have to charge VAT for some reason, despite being VAT registered

They then pay £350 to Customs and Excise because that is 17.5% of their profit (£2000)

Is that the case? I thought all VAT registered companies had to charge on VAT. Unless it's VAT exempt like food.

Gary A

 

[si-mate]

There is a secondhand goods scheme for VAT. You only pay VAT on the profit, not on the whole selling price.
I don't know how it applies to the motor trade, but we sell second hand saddles (on commission) so if we sell a saddle for £250 and take 25% commission we have to pay 17.5% of our margin to the VAT man.

IIRC it is only applicable if VAT has never been recovered on the original purchase.

 

[j3ster]

A pre registered car will 99% of the time be what is known as a VAT qualifying vehicle - this means that when sold VAT is paid to HM Revenue & Customs on the whole of the selling price (£3276.60 of the £22k selling price in your example - 22000*17.5/117.5). When purchased though they will have reclaimed the input VAT (£2978.72 of the £20k purchase price). The net effect is that they are out of pocket £297.88 which happens to be the same as the VAT on the £2k profit if using a second hand scheme. But they are still £1702.13 in profit per your example.

There endeth the lesson. Not sure what you are concerned for cos the only thing that matters is whether you are heppy with a deal not?

 

[sri_130]

I had a funny experience over 2 years ago now.

I'm not sure if you can still search over my posts, but the long and short of it was, Seat registered the car under their name as a demo. Although it was never used as a demo, they then sold it on to me. (or tried to) for which they had to be the registered owner for 3 months (so that they can do this VAT fix), But that meant me driving round in a car that wasn't mine and i was the second owner, plus I never saw a penny discount!

Cheeky swines! - not sure if that is still the case.

 

[papdog]

Generally the only time we ever pre-reg cars is to take advantage of a deal from Seat which allows us to sell the car at a reduced cost to you. With the deals that dealers have to do to get business these days, it's the only way you will ever sell a pre-reg, by making it cheaper than an equivalent new car.

Graham

 

[andycupra]

sounds ok to me.

why would they have to pay vat twice otherwise?

 

[papdog]

If the car is registered to the dealer they are generally VAT qualifying as we are a company. So we have to pay the VAT we can reclaim on the car when we pre-reg it when we sell it on to you. We then have to pay the VAT on any profit we make as well.

Graham