Accounting services
VAT Margin Scheme for car dealers and used vehicle traders
Motor Trade Accounting connects used car, van and motorcycle dealers across the UK with specialist help on the VAT Margin Scheme. Get your stock book, invoices and margin calculations checked by someone who works with dealers every day.
What the VAT Margin Scheme means for a dealer
The VAT Margin Scheme lets a VAT-registered dealer account for VAT on the difference between what a second-hand vehicle cost and what it sold for, rather than on the whole selling price. For most used car, van and motorcycle dealers it is the biggest single factor in how much VAT leaves the business each quarter, and it only works when the paperwork behind every vehicle stands up.
The scheme covers vehicles bought without VAT being charged on them: from private sellers, from traders who are not VAT registered, or from other dealers who sold them under the scheme themselves. VAT is then due on the margin using the VAT fraction, which is one sixth of the margin at the standard rate. A vehicle sold for less than it cost carries no VAT, but that loss cannot be set against the margin on any other vehicle, and global accounting, which some second-hand traders use to work out margins across a whole stock, is not available for motor vehicles. Every car, van or bike is accounted for on its own.
Mistakes usually show up in one of two ways. Either vehicles that should have gone through normal VAT accounting are put through the scheme, or records are missing, which can leave a dealer paying VAT on the full selling price if HMRC checks. Specialist support looks at both, from the stock book to the way your dealer management system reports each sale, so the VAT you pay is the VAT you owe.
What margin scheme support covers
The work is built around the records HMRC expects to see for every vehicle that goes through the scheme.
- Eligibility checks on purchasesConfirming which vehicles can go through the scheme and which cannot, such as stock bought from a VAT-registered seller who charged VAT on the invoice, which belongs in normal VAT accounting.
- Stock book reviewA stock book is a condition of using the scheme. Each vehicle needs its stock number, make, model and registration, purchase and selling details, and the margin worked out for it.
- Purchase and sales invoice checksMargin scheme invoices must carry specific details, and a sales invoice must not show VAT as a separate amount. Your templates and a sample of real invoices are checked against HMRC's requirements.
- Margin calculationsWorking out the margin on each vehicle correctly. Repairs, valeting and parts are not added to the purchase price, although the VAT on those costs can usually be reclaimed in the normal way.
- Part exchange treatmentMaking sure the part exchange allowance is recorded as the purchase price of the vehicle taken in, and that the full price of the vehicle sold, before the allowance, is used as its selling price.
- Add-ons and finance commissionSeparating the margin on the vehicle from paint protection, extended cover products, delivery charges and finance commission, each of which follows its own VAT treatment.
- VAT return reconciliationChecking that the margin scheme figures on each VAT return agree with the stock book and with the sales recorded in your accounts, so any gap is found before HMRC finds it.
What to look at before you start
A few questions about how you buy and sell make the first conversation much more useful.
Where your stock comes from
Private sellers, auctions, trade sellers, part exchanges and lease returns can all be treated differently. Ex-fleet and ex-lease vehicles often arrive with VAT charged, which takes them out of the scheme.
Your dealer management system
Check whether it records margin scheme and standard-rated sales separately, and whether it can produce a stock book in the form HMRC expects. Many problems start with a setting nobody has looked at.
Demonstrators and pre-registered cars
New vehicles bought with VAT, used as demonstrators or pre-registered, normally go through standard VAT accounting when sold. List any you hold so their treatment can be checked.
How long you keep records
Keep the stock book and every purchase and sales invoice. HMRC generally expects VAT records to be kept for six years, and missing paperwork is the most common reason a margin claim fails.
Good to know
Losses stay with the vehicle
A car sold below cost has no VAT due on it, but the shortfall cannot reduce the VAT on a profitable sale. That is one reason accurate purchase prices matter on every vehicle.
No input VAT on margin purchases
There is no VAT to reclaim on a vehicle bought under the scheme, because none was charged. Input VAT on related costs, such as workshop repairs from a VAT-registered garage, is a separate matter.
Business buyers and VAT invoices
A margin scheme sale cannot carry a VAT invoice. In some cases a dealer can choose to account for VAT on the full price instead, so ask before agreeing to this for a trade or business buyer.
Trade sales between dealers
When you sell a vehicle to another dealer under the scheme, they can generally use the scheme on their own sale too, provided your invoice carries the right wording.
How it works
- 1
Tell us about your dealership
Send an enquiry with a few lines on what you sell, roughly how many vehicles go through the scheme and what worries you about your current VAT position.
- 2
A conversation with a specialist
A motor trade accountant gets in touch to talk through how you buy, sell and record stock, and what records you already keep.
- 3
A look at your records
Your stock book, a sample of invoices and recent VAT returns are reviewed, and anything that needs correcting is explained in plain terms.
- 4
Ongoing VAT support
You decide what help you want next, from a one-off review to support with each quarter's VAT return.
VAT Margin Scheme questions
What is the VAT Margin Scheme for used cars?
It is an HMRC scheme that lets a VAT-registered dealer pay VAT on the profit margin of an eligible second-hand vehicle, rather than on its full selling price. The VAT due is the VAT fraction of the margin.
Can I use the margin scheme on every vehicle I sell?
No. It only applies to vehicles bought without VAT being charged, such as those from private sellers or from other dealers selling under the scheme. Vehicles bought with VAT shown on the invoice go through normal VAT accounting.
Do I need to keep a stock book?
Yes. A stock book recording each vehicle, its purchase and selling details and its margin is a condition of using the scheme, alongside the purchase and sales invoices.
What happens if I sell a car at a loss?
No VAT is due on that sale. The loss cannot be offset against margins on other vehicles, because global accounting is not allowed for motor vehicles.
Can I reclaim VAT on repairs to margin scheme stock?
Generally yes, if you are VAT registered and hold a valid VAT invoice for the work or parts. Those costs are not added to the purchase price when working out the margin.
Who will look at my margin scheme records?
Your enquiry goes to a qualified accountant who works with motor trade businesses and deals with the margin scheme regularly.
Related help
Want your margin scheme records checked?
Send an enquiry with a few details about your stock and how you sell it, and a specialist will be in touch to talk it through.