Hi, thanks for clarifying. By the fact that they’ve paid you the original price, I’m assuming that (perhaps due to the rarity) the car hasn’t lost any value in the 18 months since you bought it. If anything may actually now be worth more, assuming that they’ll be looking to make a profit when they re-sell.
The VAT charged by any company supplying goods or services can only be recovered by a VAT registered business receiving that supply. Each transaction must be considered separately. So the dealer can’t reclaim the VAT which they originally charged you, because they’ve now bought the car back from you as a separate transaction.
This does mean that the dealer is currently out of pocket by the VAT amount. However, if they now sell it on “second hand” to someone else, they will probably be able to use the margin scheme. The margin scheme means that they’ll only now need to account for VAT on the difference between what they paid you and what the new buyer pays them. So once they’ve sold it to the new buyer, the amount of VAT accounted for by them in total will be the same as if they’d sold it from new directly to the new buyer.
As an example, using some round figures to simplify the maths:
- Original sale by dealer to you: £60k (£50k + £10k VAT). Dealer pays £10k to HMRC.
- Later sale by you back to dealer: £60k, no VAT.
- Dealer sells using margin scheme to new buyer, say £66k. Dealer must pay to HMRC 20/120ths of the £6k difference, which is £1k.
- Total paid by dealer to HMRC is £11k, which is the same as if they’d originally sold the car directly to the new buyer for £66k (£55k + £11k VAT).
There would only potentially be an issue if the new buyer was a VAT registered business who would have been entitled to reclaim some or all of the VAT on their purchase of a new car.