A visit from the VAT inspector would send shivers through the spine of many businesses, and did exactly that to one of our clients, who had a VAT visit recently after the Feb 19 quarter showed he was due back over £10k. HMRC wanted to review the records just to make sure everything tallied up, as it was such a large sum of money due back, and so naturally our client was a little concerned in case there was an error and he ended up owing some of the money.
How does one end up with such a large amount of VAT repayment, you may ask?
The type of business our client runs (used cars in the UK and Exporting to Cyprus) meant he is eligible for something called a Margin Scheme. The majority of the cars they purchase are under the margin scheme, and they also buy VAT qualifying cars (ie. VAT has been charged on the purchase price). Under the margin scheme you take the margin between the selling price and purchase price of each car and calculate the VAT payable (ie. 1/6th) on this margin. With VAT qualifying cars, we claim the VAT paid on the purchase price and zero rate the sales invoice (ie no VAT) to the customers in Cyprus provided we have the customers’ VAT number. We had all this information for the quarter under review, which then resulted in a repayment of £10,000 for our client.
Well-kept records mean a VAT visit is nothing to worry about.
The VAT officer spent a couple of hours looking through the records and margin scheme calculations. He managed easily trace the figures back to the invoices and commented on how good the records were kept. He was also happy with the margin scheme calculations and happy with the treatment of the VAT qualifying cars. In the end the officer said he would write up his report and authorise for the repayment to be made the next day and no further action was required, a great result for both Barnett Ravenscroft and our client.
What is the Margin Scheme?
The government website describes it as this:
If you sell second-hand vehicles on which you were not charged VAT, using the Margin Scheme will save you money.
Without the Margin Scheme, you would have to account for VAT on the full selling price of each vehicle.
But, if you use the Margin Scheme, you can account for VAT on the difference between the price you pay for a second-hand vehicle and the price you sell it for.
If you sell a vehicle for less than you paid for it, you will not have to account for any VAT on the sale.
If you think you may be eligible for the Margin Scheme, please get in touch with us and we can chat through it with you to see if we can help you get a repayment like our client.