Cars and vans fall into two categories: 1. margin scheme vehicles - this is where there is no VAT charged to the garage. These vehicles are treated as margin scheme vehicles. VAT is due on the profit margin. The garage must maintain a stock book (available from http://www.lawdata.co.uk/stationary.htm). 2. qualifying vehicles - where the supplier charges VAT to the garage, that VAT can be reclaimed. VAT is then charged on the sale of the vehicles. You are not allowed to transfer vehicles from qualifying to margin scheme.
Also, check out the guidance here: http://www.hmrc.gov.uk/vat/start/schemes/margin.htm and http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_PROD1_030002&propertyType=document
I am about to do a VAT return for a garage, and the owner said some transactions are VAT Qualifying vehicles.
Can someone explain to me what that means, and how they are treated differently from normal sales and purchases.
Thanks
You treat purchases of qualifying vehicles effectively "normally" - there will be VAT to reclaim on the purchase and VAT is charged on the sale (The purchase invoice would normally indicate if the car is qualifying)
If the car is "marginal" (and it would normally say so on the invoice if the car was bought from auction; if the car was a purchase or p/ex from a private unregistered person, then it will be marginal...) then there will be no VAT to reclaim, and you pay VAT on the margin (difference between the sale & purchase price - although watch for extras so on that won't count towards the purchase price of the car - see the notes).
If the garage sells a marginal car, they must not separately identify the VAT on the sales invoice.
(It's the "marginal" cars rather than the "qualifying" cars that seem "abnormal" if you are used to standard VAT accounting)
You (or the garage) can do the required stock book in excel/spreadsheet, and use it to track the sales/purchases of each car and also do all the calculations for the VAT margin scheme. If you handle the margin scheme in excel (or somewhere else), then you can just journal the overall results into your bookkeeping software (assuming that your bookkeeping software doesn't handle the VAT margin scheme natively)
VAT Notice 718/1 explains it all (as previous poster says)
