VAT on Used Car Sales

stuart_thefc

I recently bought a car from a franchised main dealer.
The car was listed at £18,500

I paid a deposit of £3,500 leaving a balance of £15,000

I took out the main dealers finance loan which is in the form of an HP agreement.

Looking through the agreement, the dealer has added VAT at 20% to the outstanding balance.

Is this right???

So does this mean when buying a car they should advise listed prices are ex-VAT?

Any advise or guidance appreciated before I raise this with the dealer.

AdrianC

Do you mean £18,500 + vat = £22,200? Or £15,400 + vat = £18,500?

If the former, raise it. If the latter, it's probably right.

VAT may be liable on used cars, but it must be either advertised as a VAT inclusive price or explictly labelled as being liable. If a new car had the VAT reclaimed on it by a VAT-registered owner, then it'd be chargeable on resale. I'm guessing this is a near-ish new car? So probably a rental, and almost certainly a corporate first owner of some kind.

stuart_thefc

Hi Adrian

The car is on a 64 plate, so reg Oct 2014.

So the car was on an Audi main dealer used car lot for £18,500

We agreed to buy it with some extras - car guard etc which brought the total to £19,088

We then paid a cash deposit of £3,500

Total left to finance £15,588

Audi then added 20% VAT and this became the new value to finance £19,088

Does this seem wrong to you??

Thanks

AdrianC

stuart_thefc wrote: »

Hi Adrian

The car is on a 64 plate, so reg Oct 2014.

So the car was on an Audi main dealer used car lot for £18,500

We agreed to buy it with some extras - car guard etc which brought the total to £19,088

We then paid a cash deposit of £3,500

Total left to finance £15,588

Audi then added 20% VAT and this became the new value to finance £19,088

Does this seem wrong to you??

No, it seems right, and I think you're misreading it.

£18,500 + extras = £19,088 to be paid.
(which is made up of £19,088 = £15,906.67 + VAT, if the buyer was in a position to reclaim VAT, which he isn't)
--- separately ---
£19,088 - £3,500 deposit paid = £15,588 to finance.

It's not £15,588 + VAT, because that = £18,705.60

stuart_thefc

So they are declaring the VAT element on the price shown - they have actually sent me a VAT invoice of £15973.16 + 20% VAT = £19,087.99

If I deduct my deposit from the above we get the finance amount and on we go.

Thanks Adrian

arcon5

So how much is the actual finance... If it's £19k as you say then they may be falling foul to consumer protection rules.

timwalker

I’m confused about how the balance to finance can be more than the original screen price.

daveyjp

AdrianC wrote: »

No, it seems right, and I think you're misreading it.

£18,500 + extras = £19,088 to be paid.
(which is made up of £19,088 = £15,906.67 + VAT, if the buyer was in a position to reclaim VAT, which he isn't)
--- separately ---
£19,088 - £3,500 deposit paid = £15,588 to finance.

It's not £15,588 + VAT, because that = £18,705.60

Correct.

The VAT has to be accounted for, this explains it.
.
https://www.gov.uk/government/publications/vat-notice-7181-the-vat-margin-scheme-on-second-hand-cars-and-other-vehicles

AdrianC

timwalker wrote: »

I’m confused about how the balance to finance can be more than the original screen price.

£18,500 screen price + £588 for "some extras - car guard etc" (post 3) = £19,088

timwalker

AdrianC wrote: »

£18,500 screen price + £588 for "some extras - car guard etc" (post 3) = £19,088

Yes, but he also said he paid £3500 deposit.

It would be very odd for a dealer to mark a vehicle at a pre-vat price, and one thats 3 1/2 years old!!

Commercials yes, but not cars.

AdrianC

timwalker wrote: »

Yes, but he also said he paid £3500 deposit.

Yes, £3,500 towards the £19,088 price.

It would be very odd for a dealer to mark a vehicle at a pre-vat price

They didn't. The sums don't add up. It just happens that the deposit is roughly the same proportion of the purchase price as the VAT would be, which is where the confusion's come from. They've simply given an invoice which shows the VAT proportion of the £19,088 sale price.

and one that's 3 1/2 years old!!

Commercials yes, but not cars.

It's entirely possible for a used car to be VAT qualifying even when it's quite old. All it needs is an unbroken chain of VAT-registered owners having reclaimed the VAT on their purchase.