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VAT and car sales.


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looking at some nearly new cars and the pricing seems odd.

An example is a car that had a new price tag of £43,080 is on sale, at 6 months old 8,000 miles, £37,800.

Now VAT on new cars is 20% so the pre tax price of the new car is £35,900.

So this, and others I've noticed are being sold for more than their pre VAT price.

Now I know there is the VAT on dealer profits, 1/6 of the profit margin, but this cannot account for the discrepancy.

Is this just thieving scum dealers or am I missing something?

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VAT on a secondhand car is calculated under the rules of the margin scheme. VAT is levied on the selling price less the purchase price. The VAT on the new car is only recoverable in specific circumstances so is effectively borne by the first purchaser and is a sunk cost.

The dealer will expect to pay less than the new pre VAT price for a used car. Probably under £30k for the example you've used. He will sell it for as much as he can. The second purchasor will in your example pay £1300 VAT  on the markup of £7800. That's still a reasonable saving on the VAT if it was purchased new. 

Of course the vehicle will still depreciate 25% - 30% in years 1 and 2. Five year old cars are usually only worth 20% of the new price if that.

Edited by sleepwello'nights
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14 minutes ago, Frank Hovis said:

If you're a private individual selling after six months then £43k down to £38k sounds about right because you can't do anything about the VAT.

Why would dealers be selling more cheaply than private sellers?

Your missing the point, they are selling a used car for more than the price of a new car.

And for the margin scheme to account for the discrepancy would mean the dealer had purchased he car for £24,500. 

They would have to be making £11,400 to generate the £1900 in vat to raise the price to above the VAT free new car price.

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14 minutes ago, sleepwello'nights said:

VAT on a secondhand car is calculated under the rules of the margin scheme. VAT is levied on the selling price less the purchase price. The VAT on the new car is only recoverable in specific circumstances so is effectively borne by the first purchaser and is a sunk cost.

The dealer will expect to pay less than the new pre VAT price for a used car. Probably under £30k for the example you've used. He will sell it for as much as he can. The second purchasor will in your example pay £1300 VAT  on the markup of £7800. That's still a reasonable saving on the VAT if it was purchased new. 

Of course the vehicle will still depreciate 25% - 30% in years 1 and 2. Five year old cars are usually only worth 20% of the new price if that.

So is a £300 per month lease plus VAT a scam whereby the manufacturer and lessor get around stumping up £6K of VAT on a £30K motor by only charging VAT on the portion used.

The car is the surrendered back after say ~£2K of VAT being paid and the then sold as used, has £4K of VAT magically disappeared?

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3 minutes ago, GBDamo said:

Your missing the point, they are selling a used car for more than the price of a new car.

And for the margin scheme to account for the discrepancy would mean the dealer had purchased he car for £24,500. 

They would have to be making £11,400 to generate the £1900 in vat to raise the price to above the VAT free new car price.

I get the point you were making but for most people the VAT element is no different to the ex-VAT cost; which means that the dealer benefits as you set out.

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10 minutes ago, GBDamo said:

Your missing the point, they are selling a used car for more than the price of a new car.

No, the used price is less than the new price and both are VAT inclusive. All consumer prices have to be VAT inclusive, the secondhand dealer does not add VAT to his price.

Edited by Panther
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5 minutes ago, Panther said:

No, the used price is less than the new price, both are VAT inclusive.

Nonessene, VAT is a levy applied to the cost of a purchase and is listed on the invoice as such, an addition.

If you care to ask you must always be given a VAT invoice for purchases.

 

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Posted (edited)

Yes its real, was looking at a Passat 240BHP R-Line 4Motion estate...more numbers bells and whistles, new price as above.

It surprised me as we got ours, a 170 R-Line, for over 30% off the new price at 6 months old and 7000miles.

This just stood out as odd .

Edited by GBDamo
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16 minutes ago, GBDamo said:

Nonessene, VAT is a levy applied to the cost of a purchase and is listed on the invoice as such, an addition.

If you care to ask you must always be given a VAT invoice for purchases.

Consumer prices are always VAT inclusive. When was the last time you as a consumer had VAT added to (not subdivided from) an advertised price? Try any online shopping cart, the advertised price is split into net and VAT only once you are buying and that subdivision is irrelevant to you, the price remains the same.

Edited by Panther
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Just now, Panther said:

Consumer prices are always VAT inclusive. When was the last time you as a consumer had VAT added to (not subdivided from) an advertised price?

how it's displayed is an irrelevance, it is a levy upon the retail price and is always listed as such on a full invoice.

The retail price is the retail price, VAT is added. Its not controversial.

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19 minutes ago, GBDamo said:

Yes its real, was looking at a Passat 240BHP R-Line 4Motion estate...more numbers bells and whistles, new price as above.

It surprised me as we got ours, a 170 R-Line, for over 30% off the new price at 6 months old and 7000miles.

This just stood out as odd .

You can get 20% off new on that model:

https://broadspeed.com/new_cars/volkswagen/Passat

 

Edited by spunko
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35 minutes ago, Chewing Grass said:

So is a £300 per month lease plus VAT a scam whereby the manufacturer and lessor get around stumping up £6K of VAT on a £30K motor by only charging VAT on the portion used.

The car is the surrendered back after say ~£2K of VAT being paid and the then sold as used, has £4K of VAT magically disappeared?

Its not a scam it is how the rules work. 

The leasing company purchase the vehicle and reclaim the VAT.

They lease the vehicle to an end user and he pays VAT on the leasing charges. He can reclaim 50% of the VAT on the leasing charges if the vehicle is used for business. 

When the car is sold by the business that reclaimed VAT then VAT is chargeable on the sale price.

 

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4 minutes ago, GBDamo said:

Are you sure you don't fancy this? It's only £100 more a month.

https://www.stratstone.com/search/offer/new-car/bmw/m4-competition-2dr-dct/18758/

xD

 

I do like the Passat, or that new one they've bought out which appears to be a bit longer, the Ateron or something. No idea how much it costs.

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22 minutes ago, sleepwello'nights said:

Its not a scam it is how the rules work. 

The leasing company purchase the vehicle and reclaim the VAT.

They lease the vehicle to an end user and he pays VAT on the leasing charges. He can reclaim 50% of the VAT on the leasing charges if the vehicle is used for business. 

When the car is sold by the business that reclaimed VAT then VAT is chargeable on the sale price.

 

That's the thing cars will be sold by a dealer as either VAT qualifying or  VAT margin.

VAT Qualifying cars are either brand new cars or cars that have previously been owned by a VAT registered business (so demonstrators or lease cars). When the dealer sells the car VAT is taken from the total sale price (so on a £36,000 car, the dealer takes £30k). 

VAT Margin cars are second hand cars bought from non VAT registered sellers. So on the car above say he buys it for £32,000 and sells it for £36,000 he will only pay VAT on the profit margin so £666.66 or so.

And in reality it actually doesn't matter as in the former case the dealer will still be paying £32,000 for the car from the seller. He just has 2 VAT transactions to account for a bill of £6000 that needs to be paid to HMRC and a bill of £5333.33 which HMRC needs to pay the dealer. So it all actually balances out.  

Edited by eek
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7 hours ago, spunko said:

Are you sure you don't fancy this? It's only £100 more a month.

https://www.stratstone.com/search/offer/new-car/bmw/m4-competition-2dr-dct/18758/

xD

 

I do like the Passat, or that new one they've bought out which appears to be a bit longer, the Ateron or something. No idea how much it costs.

Nice looking cars saw a couple on the a14 which must be the most dull road in the country

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12 hours ago, GBDamo said:

Is this just thieving scum dealers or am I missing something?

The dealer can buy the new car from VW for £36k, but because it's new they have to charge VAT on it when they sell it to a retail punter. They have to sell it for at least £43k or they make a loss. There's no way to avoid paying the VAT.

Once the car has been sold and the VAT has been paid to the government the car immediately becomes secondhand for VAT purposes and so can be sold charging VAT only on the margin. So the dealer can buy the car for £37k, sell it to a punter for £40k, and book a profit of £2500 (which is £3k less the 16.666% vat... or whatever it is, it doesn't really matter for the purposes of making my point). So the dealer has paid more for the secondhand car, sold it for less than the new one, and yet can still book more profit, because the original purchaser of the car has helpfully paid off the government and they now demand a much smaller slice of any future transactions.

It's not in any way a scam, it's just the nature of how VAT works. If there is no way to buy a new car without paying VAT on it, then the VAT has the effect of inflating the secondhand value of the car when it is nearly new. The second purchaser of the car is just sharing some of the cost of the VAT with the original purchaser, which given that the car is nearly new, is perfectly reasonable.

It's not just cars that that applies to; if you queue outside the shops the night the Playstation 5 is released to buy one before it sells out, get it home and find that actually you don't like it, it would be perfectly reasonable to try and sell it in as-new condition for 90% of what you paid for it, especially if they're in short supply. The government still gets their VAT, you only lose 10% of your outlay, the person you sell it to saves 10%, nobody is being ripped off.

Edited by Rave
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10 hours ago, Rave said:

 

It's not in any way a scam, it's just the nature of how VAT works. If there is no way to buy a new car without paying VAT on it, then the VAT has the effect of inflating the secondhand value of the car when it is nearly new. The second purchaser of the car is just sharing some of the cost of the VAT with the original purchaser, which given that the car is nearly new, is perfectly reasonable.

With the utmost respect and no offence meant but that's bollocks.

When the new car is sold a check is sent to HMRC for the VAT, all the VAT, paid by the poor sap that bought it.

Poor sap comes back to the stealer six months later to sell it back, yes he's thick. The stealer will explain, with teary eyes, how the price of the car is £36k and once bought loses 20% so now worth £27k and offer that.

The poor sap will claim to have paid £43k, "that's VAT sir" the stealer will empathise.

The poor sap will now have the remainder, £13k minus payments, of the finance. He will be paying that VAT back for years.

 

The stealer now has a shiny new 43k car on the forecourt and a six month old one he paid 27K for.

Something is weird as you'll find some on for 33kish, about fair, and some on at 38k, funking chances.

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21 minutes ago, GBDamo said:

 

 

With the utmost respect and no offence meant but that's bollocks.

When the new car is sold a check is sent to HMRC for the VAT, all the VAT, paid by the poor sap that bought it.

Poor sap comes back to the stealer six months later to sell it back, yes he's thick. The stealer will explain, with teary eyes, how the price of the car is £36k and once bought loses 20% so now worth £27k and offer that.

The poor sap will claim to have paid £43k, "that's VAT sir" the stealer will empathise.

The poor sap will now have the remainder, £13k minus payments, of the finance. He will be paying that VAT back for years.

 

The stealer now has a shiny new 43k car on the forecourt and a six month old one he paid 27K for.

Something is weird as you'll find some on for 33kish, about fair, and some on at 38k, funking chances.

Have you ever been in the buying and selling game as it might not be for you, why’s a dealer ever going to offer more than they have to on p/ex regardless of the vat position?

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27 minutes ago, GBDamo said:

The poor sap will claim to have paid £43k, "that's VAT sir" the stealer will empathise.

Something is weird as you'll find some on for 33kish, about fair, and some on at 38k, funking chances.

That may be the way they try to frame it to soften the blow but not in reality it is the package in total (including the VAT) that has devalued that much in the time period.  There's no get out, as a private buyer in the chain you pay the VAT and cannot claim any of it back. The VAT has overinflated the initial cost (perceived value) of the car and this does continue to be reflected in later sales prices, it becomes part of the overall price for that item. Look at some high car tax EU countries, their S/H values are insane in some cases and there are very strict rules about brining / using any car back form nearby / neighbouring countries to prevent arbitrage between different tax areas.

 

 

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