Car dealers
When is a sold car ready to hand over?
A sold car is ready to go when four things are true: the sale and VAT are right, the money is in, the preparation is done and the person collecting it is authorised. Here’s the checklist, with margin scheme VAT worked through on one sale.
The handover checklist
Release the car only when every line is ticked. A “Sold” status or a booked collection doesn’t cover them.
- Sale recorded. Customer, vehicle, agreed price, extras and VAT treatment are on the invoice. For a margin scheme car, the purchase invoice is on file.
- Payment cleared. Receipts allocated to the invoice cover the total, and the money is in the bank. A receipt someone typed in is not proof.
- Car prepared. Agreed work and any safety repairs are finished. Documents, keys and accessories are ready.
- Right person collecting. ID checked, or written authority if someone else collects.
- Handover logged. Date and time, mileage, keys given, staff member and the customer’s signature.
If anything changes after sign-off (a payment reversed, a repair reopened, the invoice revised), the car goes back to “not ready” until that line is checked again.
Check the balance
Balance due = invoice total − cleared receipts. On a £12,500 invoice with a £2,000 deposit, £10,500 is due. Release at £0, unless the owner approves releasing early; record who agreed, the amount and why. Part exchange, finance and credits need reconciling first.
Car margin and margin scheme VAT
Under the margin scheme, the car margin is the selling price minus the purchase price. VAT is one-sixth of that margin at 20%, and it’s already inside the price: the customer pays no extra.
Scroll across the table to read every column.
| Amount | |
|---|---|
| Selling price | £12,500.00 |
| Less purchase price | £10,000.00 |
| Margin | £2,500.00 |
| VAT: £2,500 ÷ 6 | £416.67 |
| Less preparation costs | £600.00 |
| Profit on the car before overheads | £1,483.33 |
Preparation, repairs and transport don’t reduce the margin for VAT, but they do reduce your profit. The invoice shows the £12,500 total and the words “Margin scheme - second-hand goods”, with no VAT figure.
The car is only eligible if you bought it without VAT shown separately on the invoice. A Motability invoice showing VAT at the zero rate can still be eligible. If the auctioneer charges VAT separately on the hammer price, you cannot use the margin scheme or Global Accounting for onward sale. See preparation estimates versus actual costs for the costs side.
Auction fees and the purchase price
When you buy at auction, the invoice decides what goes into the margin-scheme purchase price. Under VAT Notice 718/1, that price is the hammer price plus service charges that do not show VAT separately. Indemnity fees stay out. Charges that show VAT separately stay out of the purchase price; reclaim that VAT under the normal rules if you’re entitled.
Under the auctioneers’ scheme (Notice 718/2), a buyer’s premium included in the scheme has no separate VAT figure. For you as a dealer, that premium is part of the purchase price, so the margin (and VAT at one-sixth) is smaller. There is no input-VAT claim on that included premium.
- BCA (margin-scheme lots under the auctioneers’ scheme): on a VAT margin scheme invoice the car and the buyer fee both show 0% VAT. Under Notice 718/2, that buyer fee is added to the hammer price with no separate VAT, so car plus fee is your margin-scheme purchase price. There is no VAT to reclaim on the fee.
- Hobbs Parker (published buyer costs): different treatment. The buyer’s fee is a Purchasers Protection Scheme Indemnity Fee, and the page states VAT applies to all fees. HMRC’s vehicle guidance says indemnity fees must not go into the margin purchase price. Keep the fee outside the scheme purchase price and reclaim the separately shown VAT if you’re entitled.
Scroll across the table to read every column.
| BCA: fee in auctioneers’ scheme | Hobbs Parker: indemnity fee + 20% VAT | |
|---|---|---|
| Hammer | £10,000 | £10,000 |
| Buyer charge | £600 at 0% VAT (in purchase price) | £500 + £100 VAT (out of purchase price) |
| Cash paid | £10,600 | £10,600 |
| Scheme purchase price | £10,600 | £10,000 |
| Sale at £12,500 → VAT ÷ 6 | £316.67 | £416.67 |
| Input VAT on fee | £0 (none to reclaim) | £100 (if recoverable) |
Do not put a fee into the purchase price and reclaim its VAT. If the auction invoice does not make the scheme values clear, ask the auctioneer before you enter the stock book. Motability purchases with a zero-rated VAT invoice can still be eligible for the margin scheme if the other conditions are met.
Sources: HMRC Notice 718/1: buying second-hand vehicles · HMRC Notice 718/2: auctioneers’ scheme · Hobbs Parker: costs for sellers and buyers
Invoice wording and the stock book
The customer invoice shows the total and the words “Margin scheme - second-hand goods”, with no VAT figure. Link that invoice to the purchase invoice and the vehicle’s stock-book entry. HMRC can assess VAT on the full selling price if the scheme records can’t be checked.
Common questions
How do I work out the margin on a used car?
Selling price minus purchase price. Preparation and repairs are not deducted for VAT. At 20%, VAT is one-sixth of the margin.
Is there VAT if I sell a car for less than I paid?
No VAT is due on a negative margin, and you can’t offset it against other cars.
Can I release a car before it’s paid in full?
Only if the owner approves it. Record the amount outstanding, who approved it and why.
Sources: HMRC: VAT margin scheme for second-hand vehicles · HMRC: buying vehicles for the margin scheme · HMRC: auctioneers’ scheme · Hobbs Parker: buyer’s costs
Payments, preparation and handover in one record
If the sale, payment and preparation checks sit in different places, describe the systems you use and where a car could be released too early. Andrew is developing dealer management software and can tell you whether your current setup can hold these checks.
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Related service: Car dealership accounting