Motor trade GST margin scheme

About the motor trade margin scheme

GST is normally due on the full value of goods when they are sold, but the motor trade margin scheme enables it to be charged only on the difference (or margin) between the buying and selling prices of second-hand cars, rather than on the full selling prices.

It applies only to motor vehicles and is intended mainly for motor traders, but it can be used by any GST-registered person who sells a vehicle in the course of business.

The scheme is not compulsory but, if you decide to use it, you must meet its conditions or you will have to pay GST on the full selling price of your car sales.

Example

A GST-registered motor trader:

purchases a used vehicle (or takes one in part exchange from a non GST-registered person or another GST-registered motor trader using the margin scheme)
pays, or allows in part exchange, £6,000 for the vehicle
sells it for £10,000

GST will only be chargeable on the price difference (margin) of £4,000, rather than the full £10,000.

How you use the margin scheme

Provided that you are GST-registered, you need to show that you have properly applied the rules of the scheme in your quarterly returns.

If you don't use the scheme

If you decide not to use the scheme, you will have to pay GST on the full selling price of your vehicles.

Conditions of the margin scheme

The scheme only applies to certain vehicles, and is conditional upon specific information being recorded and kept.

Vehicles that are eligible:

second-hand vehicles part exchanged or purchased from private individuals
second-hand vehicles purchased from dealers who are not GST-registered
second-hand vehicles purchased from GST-registered businesses using the margin scheme

If you purchase a vehicle from another GST-registered business you must be satisfied that it is being supplied under the scheme.

Vehicles that are ineligible:

second-hand vehicles imported under the Customs Approved Trader Scheme (where GST payment is postponed)
vehicles that are bought including GST
demonstration vehicles
former fleet hire cars on which GST was not paid when new

Vehicles must be obtained for resale in circumstances where input tax cannot be recovered by the motor trader.

The margin must be calculated according to the rules of the scheme

You cannot include the following in the buying price:

the cost of the repair, modification or refurbishment in preparation for resale of any vehicle that is bought or part-exchanged under the scheme
any other business expenses incurred in the purchase or sale

However, you can reclaim any GST you pay on these costs as input tax when you make your normal quarterly GST returns.

Record keeping requirements of the scheme

The normal requirements concerning GST business records apply.

If you use the margin scheme you will have to keep:

a vehicle stock book
purchase invoices
sales invoices

These documents must be kept for any vehicle in your stock which you intend to sell under the margin scheme. This includes those bought more than six years before the GST scheme started (and for which the deadline has passed for keeping the documents in relation to other requirements).

Keeping records and accounts for GST

Keeping a vehicle stock book

Stock books must be up to date at all times and must include the following information for each vehicle you buy for resale under the scheme:

stock number (in numerical order)
date of purchase
purchase invoice number
name and address of seller
purchase price (certified as a true amount by the seller)
any unique number (ie registration, engine and chassis number of vehicle)
description of vehicle (ie make, model and colour)
date of sale
sales invoice number
name of buyer
selling price (certified as a true amount by the buyer)
margin on sale (sales price minus purchase price)
GST due

You must include your GST calculations in your stock book. If your purchase price is more than your selling price, no GST will be due. However, you cannot offset any GST on goods which are sold at a loss. In these circumstances you should show the GST due as 'nil' in your stock book.

Buying vehicles

When you buy vehicles (or take them in part exchange) for resale under the motor trade margin scheme you must obtain a purchase invoice at the time you buy the vehicle.

If you buy from a private individual or an unregistered dealer you must:

make out the invoice yourself
ensure it contains all the necessary information.
if you obtain the vehicle from a GST registered dealer your purchase invoice must clearly show that it is being supplied under the scheme
enter the purchase details in your stock book
the purchase price must be the sum agreed between you and the seller. You must not alter this price or add the cost of repair, refurbishment or overhead costs
if you buy a number of vehicles as one lot, you must allocate a purchase price to each of them

Purchase invoices

The following information must always appear on your purchase invoices:

seller's name and address
your name and address
stock book number
invoice number
date of transaction
description of vehicle (including any unique identification number)
total price
for goods purchased from another GST-registered trader, a declaration by the seller that: 'Input tax deduction has not been and will not be claimed by me in respect of the goods sold on this invoice.'

Selling vehicles

If you intend to use the margin scheme when selling eligible goods you must:

make sure that you have complied with the margin scheme for that vehicle in every respect
make out a sales invoice
issue the invoice to your customer (and keep a copy for your records)
enter the sale in your stock book

The following information must always appear on your sales invoices:

your name and address
your GST registration number
buyer's name and address
stock book number
invoice number
date of sale
description of vehicle (including any unique identification number)
total price (you must not show GST separately)
a declaration by you that: 'Input tax deduction has not been and will not be claimed by me in respect of the goods sold on this invoice.'

You can, of course, include any other information in your stock book for your own accounting purposes, but ensure that you have at least the information listed above.

Valuing your stock in hand when you first register

Normally you would value stock in hand using the values shown in the original purchase invoices.

However, if you are newly registered, you can use a different method that is more convenient to you. You will need to be able to show us that your method produces a fair and reasonable total.

Transactions in foreign currencies

If you are paid, or make a payment, in any currency other than £ Sterling, you should convert the value of that transaction into £ Sterling using a standard bank exchange rate on the day of the transaction.

You must show the foreign currency and £ Sterling price for each item in your invoices and enter the £ Sterling price in your stock book.