Was just after some help as I am completing a VAT return for the garage, and it seems that I need to add VAT to MOT's. I understand that the MOT's themselves are not vatable. however is there a formula for me to work out the following...
Garage does not have facilities for MOT's so rents another garage to do them for £25 / vehicle. Although my garage owner actually carries out the MOT's so basically just rents the workspace/facilities.
My garage owner then invoices the customer for £54 (no VAT).
So... how do I account for VAT on this? The previous bookkeeper just put a journal entry in, so I am a bit stuck for the workings! Any advice greatfully received!
MOTs are outside the scope of VAT, and do not attract VAT at all, and do not get included in you inputs or outputs on the VAT return.
If you pass on the charge at the rate you are supplied (£25) then it is as above but if you add on to the charge, say charge your customer £54 then there is VAT on the difference.
This link takes you to the relevent page of the VAT guide. you need to look at paragragh 25.4
Edit: Just realised you said that the garage owner actually carries out the MOT himself. Can you confirm that. MOT testing is highly regulated. From my past life experience, that doesn't sound quite right, as you have to be on the register of approved examiners at the approved testing station, and I am pretty sure you have to be an employee of the approved testing station as well.
The answer to the above, will affect the treatment of VAT for the MOT HTH
Bill
-- Edited by Wella on Sunday 16th of January 2011 06:45:47 PM
-- Edited by Wella on Sunday 16th of January 2011 06:47:22 PM
Thanks for your reply. I had worked the VAT out on the difference between charged cost and invoiced cost...so thats good!
However...! I do need to clarify but I am pretty sure that I am right, and as his garage doesn't have the facilities to carry out an MOT he 'hires the space' in the garage down the road that does. This is what he is charged the £25 for. He then carries out the MOT for the customer here. I believe he did used to work full time for this garage before setting up on his own, and I also believe that he still does bits and bobs of work for them (he has all of the electronic diagnostic equipment so deals with this type of thing for them)...so does this alter the VAT calculation?
Sorry to be a pain asking all of these questions, but very very many thanks for your reply, it put my mind at rest.
Sorry - me again with a question on this topic (see first post for details!!).
Sooo...my garage is charged £25 to carry out MOT's, he then charges these to the customer at £54. So my understanding is that I would journal entry the VAT on the difference when completing the VAT return. For example, say he carried out 10 MOT's. He invoiced these at £54 (£540) and was charged £25 (£250), so I would do 20% vat on the difference i.e 540-250= 290, then £290 / 100 * 20 = vat due = £58. Is this correct?
The reason I ask is that I have just found the previous bookkeepers workings, he has taken the total invoiced for MOT's for that quarter (so in the above case 10x £54 = £540) he has then assumed this is total + VAT, so has divided this by 120 and multiplied by 20 to get the VAT amount?
I am completely confused, and helpfully HMRC have bank holidays & weekends off (the cheek of it!!) and my friend is picking these books up Monday... Any help would be Hugely and gratefully received!!
I have copied and pasted an extract from HMRC VAT guide (hope the formatting is OK?)
Basically, if you are showing the MOT at cost on the customer invoice, then you show you additional arrangement fee seperately, and only add VAT to the arrangement fee. (see the first part of the rules below)
If you are showing a single MOT charge including the mark up, then it all becomes vatable (see the second scenario below).
This seems to be the case, with your situation. If the invoice has already been produced and you are working back to extract the VAT then it is as the previous bookkeeper has calculated it.
HTH and makes sense
Bill
If you are an unapproved garage
And
Then
provided you show the exact amount charged by the test centre separately on the invoice to your customer, and meet the other conditions of paragraph 25.1.1
you may treat this element as a disbursement and outside the scope of VAT.
Any amount you charge your customer over and above the amount charged to you by the test centre, is consideration for your own service of arranging the test on behalf of your customer and is taxable at the standard rate.
And
Then
you choose not to treat the amount charged to you by the test centre as a disbursement, or you do not satisfy all the conditions set out in paragraph 25.1.1
you must account for VAT on the full invoice amount.
Was just after some help as I am completing a VAT return for the garage, and it seems that I need to add VAT to MOT's. I understand that the MOT's themselves are not vatable. however is there a formula for me to work out the following...
Garage does not have facilities for MOT's so rents another garage to do them for £25 / vehicle. Although my garage owner actually carries out the MOT's so basically just rents the workspace/facilities.
My garage owner then invoices the customer for £54 (no VAT).
So... how do I account for VAT on this? The previous bookkeeper just put a journal entry in, so I am a bit stuck for the workings! Any advice greatfully received!
Thanks in advance!
Liz
Hi Liz,
It seems to me that there is no problem here. Your garage owner conducts the MOT on his own authorised VOSA account and it is irrelevant where he does this. The £25 charge from the 2nd garage, as you say, is rent for using the equipment.
So I would charge the £54 for the MOT zero rated and write the £25 cost for using the other garage as rent.
I think the other replies have been based on sub-contracting MOT's to another station where their employees conduct the test and charge your client accordingly - then there is VAT charged on the profit element.
I have read this as that Lizs' garage owner is a nominated tester only. Because he does not have the regulated premises (VTS Vehicle Testing Station) he will not be issuing the certificate, only signing it as the nominated tester. The Authorised Examiner is responsible over all for the conduct of the nominated tester. I am pretty sure he (Lizs' garage owner) also has to be registered at the VTS.
It is the Authorised Examiner (usually the entity that owns the premises) that is authorised by the secretary of state to issue an MOT certificate not the tester, he is authourised to carry out the inspection on behalf of the Authorised Examiner. The MOT certificate will carry the name of the issueing VTS and the name of the Tester.
There is always a conflict of interest when the repairer also carries out an MOT. When I ran a garage with it's own VTS, I wouldn't even let the same technician that repaired the car, MOT it.
Obviously the above is more to do with the MOT regulations, and I seriously suspect that the VOSA would not look favourably on this arrangement. Non compliance penalties are as severe as VAT fraud, and the withdrawing authourisation to issue MOT certs is the first thing they do.
Back to the bookkeeping, as I see it (see diatribe above) Lizs' garage cannot legally issue an MOT (It is not an approved garage). Even if the issueing garage did not charge for the certificate, any charge put on the customers invoice for an MOT would be vatable.
I seem to have prompted quite a lively debate! I did read the HMRC notes and decided that the £54 was vattable (so £54 = 120%). I did wonder, though, upon reading the notes from HMRC that if he billed it differently, i.e billed £25 for MOT & £29 for MOT Labour (for example) then the VAT would only be applicable on the £29 labout element? He is seeing his accountant today so I suggested he talk it through with her and see if she suggests a different billing system?
The HMRC info certainly seems a little ambiguious anyhow...
If you describe the MOT as a single charge then it is full vatable
If you split the charge beteween the MOT cost (a dispursement of the expense) and the additional charge for the arrangement, then the MOT still remains outside the scope, and the arrangement fee attracts VAT at the standard rate.
The problem with this scenario is the question of who can issue an MOT certificate, which is what really complicates things (IMO)
-- Edited by Wella on Thursday 28th of April 2011 04:20:23 PM
