Work out the VAT on a used car sold under the margin scheme, your profit after preparation costs, and how it compares with charging standard VAT. For one car or a whole month of sales.
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The margin scheme VAT and what you keep from this sale.
Selling price minus purchase price
£2,400.00
Margin × 20/120 (1/6)
£400.00
Margin minus VAT due
£2,000.00
Net margin minus preparation costs
£2,000.00
Effective VAT: 4.8% of the selling price.
The same car sold for £8,400.00 including VAT.
| Figure | Margin scheme | Standard VAT |
|---|---|---|
| VAT due | £400.00 | £1,400.00 |
| Profit after prep | £2,000.00 | £1,000.00 |
| VAT shown on invoice | No | Yes |
The margin scheme saves you £1,000.00 in VAT on this car. Standard VAT applies to qualifying cars, and a VAT-registered buyer can reclaim it.
This calculator gives general guidance, not tax advice. Check HMRC VAT Notice 718/1 or ask your accountant before you file.
Under the margin scheme you pay VAT on the difference between what you paid for a second-hand car and what you sold it for, not on the whole price. HMRC treats that margin as already including VAT, so you take the VAT out of it with the VAT fraction: 1/6 at the 20% standard rate.
You buy a car for £6,000 and sell it for £8,400.
For eligibility, stock book records and more examples, read our guide to the VAT margin scheme for used cars, or go straight to HMRC VAT Notice 718/1.
Take what you paid for the car away from what you sold it for to get your margin. The margin already includes VAT, so the VAT due is the margin multiplied by the VAT fraction, which is 1/6 at the 20% standard rate. A car bought for £6,000 and sold for £8,400 has a margin of £2,400, so you pay £400 VAT and keep £2,000.
No. HMRC says your purchase price is only what you paid for the car, so valeting, repairs, parts, MOTs and transport cannot be added to it to reduce the margin. If you are VAT registered you can usually reclaim the VAT on those costs on your normal VAT return instead, as long as you hold a valid VAT invoice.
No. There is no VAT to pay on a car sold for the same as or less than you paid for it, and you record the VAT as nil in your stock book. You cannot set that loss against the VAT due on cars you sold at a profit, because the margin scheme works car by car.
No. Your selling price is the full price of the car, including the allowance you gave for the part exchange, not just the money the customer paid. The part exchange then goes into your stock as a new car with its own purchase price.
Yes, when the auction sells the car under the auctioneers' scheme and no VAT is shown on the invoice, your purchase price is the hammer price plus the buyer's premium and other charges on that invoice. If the invoice shows VAT on the fees, treat those fees as a normal business cost rather than part of the purchase price.
Haswent's dealer management system records what you paid for every car, works out margin scheme and standard VAT on every sale, and raises the invoice for you with car sales invoicing.