First you need to work out the difference between the purchase and the sale price. This difference is the VAT-inclusive margin. Calculate the VAT element of the VAT-inclusive margin by multiplying it by the VAT fraction. This is the VAT to be paid on the sale. (You can still claim the VAT back in the normal way, on general business expenses.)
There are specific rules on how to calculate your purchase price and selling price, for the purpose of calculating the VAT-inclusive margin.
The purchase price is what you paid for it. It does not include the cost of getting it ready to sell (such as repairs), but if there was VAT on these costs, it is reclaimable under normal VAT accounting rules.
The sale price includes all the proceeds, for the item (including part-exchanges). You exclude disbursements, or optional extras. However, VAT is chargeable on the optional extras under normal standard VAT accounting rules (assuming it’s a standard rate supply). (Disbursements have their own VAT rules).
For more information about the VAT Margin Schemes, how they could work for you in practice and how to handle the bookkeeping and accounting for the VAT Margin Schemes, please contact Louise at Figurate Ltd.
