Hi. I don’t understand “I purchased a new car privately from a franchised dealer, and when I sell that car back to them for the full ‘original’ cost.. “. It seems odd to be selling a new car straight back to a dealer who had just sold it to you – so is there any more to the transaction than this? Was the sale back to the dealer anticipated at the time of the sale to you – was it even part of the same contract? Where does ownership of the car legally lie at each stage – was it ever actually yours? Could the transaction be seen as a “business activity” of yours – i.e might it count towards you needing to VAT register? I’m only asking all this because if there is more to the arrangement than it first appears, that could impact on the VAT treatment. And in any event, HMRC may well query transactions where they can’t immediately see the commercial purpose.
Considering a more typical scenario – dealer A sells car to an individual B. Some time (potentially years) later B sells the car second-hand to a dealer C, who then sells it on to another individual D. Assuming that A and C are VAT registered, the VAT treatment would be:
- VAT would be declared on the original sale to B.
- There would be no VAT on the sale by B to C, as B is not a VAT registered business.
- VAT would be due on the sale by C to D. However C may use a “margin scheme” which would allow them to only account for VAT on the difference between the sale and purchase values (more on margin schemes in HMRC’s notice – formerly 718, now 718/1).
One point about the margin scheme is that the supplier (C in the example above) cannot show the VAT separately on the invoice that they issue to their customer. So if the customer is a business, they would be unable to reclaim any VAT, as they wouldn’t have a valid VAT invoice. The margin scheme is optional, and there are some circumstances where dealers aren’t entitled to use it anyway. So I suspect that the phrases you’re referring to in your last paragraph are to indicate to business customers whether the dealer will be able to issue an invoice showing VAT, as this could impact on the actual cost to them.
Finally, it’s worth noting that the ability for businesses to recover VAT on cars can be quite restricted anyway, see HMRC notice 700/64.