I have a customer who until recently only traded as a Motorcycle repair centre. However, today he has told me he will also be buying Motorbikes and trikes and doing them up to sell too.
He is VAT Registered and currently charges VAT on all of his repair work.
My question is how do I deal with the VAT on a sale of the Motorbikes or trikes, i'll provde an example below:
Purchase price 2,000
Sale Price 3,000
Profit 1,000
I think that he will have to complete his VAT on two basis', if this is allowed.
1. He will complete his VAT for repairs as normal and account for the Input and Output VAT per the invoices in the period.
2. The Sale of Motorbikes etc. could be dealt with on a margin basis, per the example above the £ 1,000 profit could be divided by 6 to get the VAT payable to HMRC of £ 166.67.
I can then add the VAT figures from both systems together to get the total VAT payable to HMRC.
Does this seem like a sound method or does anybody have anything to add?
The sale of second hand motorcycles can be treated under the margin scheme, as you suggest. There are conditions for the scheme, which largely relate to the maintaining of proper records. Notice 718 explains this, and you can buy the stock book, etc from this link http://www.lawdata.co.uk/stationary.htm
You will continue to account for VAT on repairs and servicing as you have done before. Input tax on repairs to motorcycles for sale can be recovered. However, the profit for the margin scheme ignores the cost of repair work.
