Margin scheme ― second-hand motor vehicles

Produced by Tolley

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Margin scheme ― second-hand motor vehicles
  • Conditions
  • Eligible vehicles
  • Online auction sites
  • Northern Ireland
  • Buying from EU dealers
  • Buying a second-hand vehicle from Great Britain
  • Selling a second-hand vehicle to purchaser in Great Britain
  • Calculating the margin
  • Record keeping requirements
  • More...

Margin scheme ― second-hand motor vehicles

This guidance note provides an overview of the margin scheme that can be used for selling second-hand motor vehicles (‘vehicles’). It should be read in conjunction with the Overview of margin schemes and Operating the margin scheme guidance notes.

If a business purchases a second-hand vehicle it may be beneficial for it to use the margin scheme when it sells the vehicles for the following reasons:

  1. there is no requirement to charge VAT on the full selling price of the vehicle as VAT is only due on the margin

  2. if the business does not sell the vehicle at a profit no VAT will be due on the sale

Please note that only second-hand vehicles can be sold under the margin scheme. The scheme cannot be used if VAT has been reclaimed on the purchase of the vehicle.

Business are not required to use the margin scheme and the business can elect to sell the vehicle under the scheme or outside of the scheme where preferable. However, if a business makes a decision to sell the vehicle outside of the scheme, it cannot subsequently amend the sale to bring it within the scheme.

Businesses using the scheme are still entitled to recover VAT incurred on general overheads etc in the normal way. These costs should not be added to the cost of the vehicle and should not be included in the margin scheme calculation.

Conditions

Please see the VAT (Cars) Order 1992, SI 1992/3122, Article 2 and VATMARG08100 for a definition on what is deemed to be a ‘car’ for VAT purposes.

Businesses wishing to use the margin scheme are required to meet the following conditions:

  1. the vehicle must be eligible to be sold under the scheme (eligible vehicle). An eligible vehicle must meet these conditions:

    1. it must be a used vehicle that has been driven on the road

    2. is suitable for further use in its current condition or after repair

  2. the vehicle must have been

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