Car Dealership - The Margin Scheme on Second hand cars

dan_91x Registered Posts: 8
Hi, not sure if I can get right answer here. I basically work as accounts assistant and one of our client is a car dealer. For VAT returns we use the The Margin Scheme

So basically, Vat payable = (Selling price-Purchase price)/6

I know there is no vat charged on used cars, but I have come across a few car dealer (purchases invoices) that have charged standard rate VAT 20% on the car.
My question is: if the purchase invoice for used car has VAT on it, lets say our client (the car dealer) buys a used car from a different dealer for £5000+£1000 VAT ....(although its used car)
Can the car dealer claim that?? Also how would account for this?

It would be wrong if lets say, the car dealer then sells the car for lets say £7000, then under Margin Sheme he would pay:

VAT payable=(7000-6000)/6=£166.66 but reclaim £1000 on the VAT incurred by purchasing the car. That wouldn`t make sense to me.

If I dont use margin scheme for the above example, how would I treat this for VAT return purposes?


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