VAT question

[neil-ste]

Are companies allowed to charge VAT on second hand items?

The reason I ask is the scrap yard I often use does charge VAT on top of its prices, which I thought to be wrong.

So what's the deal with it then?

 

[Norbert666]

no.

 

[Hybrids]

no.

 

[Vonhelmet]

It's just a tricky way of upping their prices. If they stopped charging "VAT" then the price you pay would still be the same - it just wouldn't have the phony VAT component.

 

[neil-ste]

So then how do they get away with it? They always give a receipt that shows the vat on it.

It's not as if they are a small affair either, probably the biggest one round here.

 

[Adz]

A VAT registered business should charge VAT on second hand goods except under certain special circumstances, as far as I'm aware.

 

[neil-ste]

It's just a tricky way of upping their prices. If they stopped charging "VAT" then the price you pay would still be the same - it just wouldn't have the phony VAT component.

I appreciate that, but why don't they just increase their prices instead of making their dealing illegal

I thought there must be some sort of reason behind it.

 

[neil-ste]

A little bit of reading has revealed that they possibly only have to pay VAT on the margin between purchase price and sale price. Which sounds plausable.

 

[Adz]

A little bit of reading has revealed that they possibly only have to pay VAT on the margin between purchase price and sale price. Which sounds plausable.

I think it depends where the goods have come from. For instance, as a VAT registered business, we buy goods brand new and claim the VAT back. If we then sell them on, either B2B or to the public, we must charge VAT as no VAT has been paid.

However, if the goods have been bought from a member of the public, chances are the VAT has already been paid therefore you probably quality for one of the special 'schemes' as you just described.

Edit: Advice provided without warranty, I'm trying to recall a conversation with my accountant which happened ~3 years ago .

 

[Norbert666]

I think it depends where the goods have come from. For instance, as a VAT registered business, we buy goods brand new and claim the VAT back. If we then sell them on, either B2B or to the public, we must charge VAT as no VAT has been paid..

That is still new goods though.

I think you do have a point though. As long as the VAT has been paid once (and not reclaimed) then it can't be charged again.

 

[Norbert666]

The reason I ask is the scrap yard I often use does charge VAT on top of its prices, which I thought to be wrong.

A scrap yard presumably takes Joe Public's vehicles. So the VAT has generally already been paid by the original purchaser. They can't charge it a second time.

 

[Adz]

Technically if we've bought them and sold them on, they're second hand but usually it's a case of us disposing of old equipment anyway.

That is still new goods though.

I think you do have a point though. As long as the VAT has been paid once (and not reclaimed) then it can't be charged again.

 

[singist]

2. Basic principles
top ^2.1 What is the Margin Scheme?
VAT is normally due on the full value of the goods you sell. The Margin Scheme allows you to calculate VAT on the difference (or margin) between your buying price and your selling price. If no profit is made (because the purchase price exceeds the selling price) then no VAT is payable.

The scheme is not compulsory. If you decide to use it you must meet the conditions of the scheme or VAT will be due on the full selling price of your sales.

top ^2.2 Why is there a Margin Scheme?
Businesses buying and selling goods can usually recover the VAT they are charged on their stock as input tax. But if you obtain most of your stock from members of the public who are not VAT registered or from other dealers using the Margin Scheme, you will have no VAT to recover. The Margin Scheme means that you still charge VAT but only on the value you add to the goods. By calculating VAT on the margin, the scheme therefore avoids double taxation as second-hand goods re-enter the economic cycle.

taken from here

 

[Sequoia]

That is still new goods though.

I think you do have a point though. As long as the VAT has been paid once (and not reclaimed) then it can't be charged again.

Sorry, Norbert, but you're wrong.

Goods bought for resale, whether second hand or not, are subject to VAT.

However, Adz and neil-ste have dabbled on the edge of an exception. Because many second hand goods are bought from non-VAT-registered sources (i.e. the public), input tax can't be reclaimed, and there is therefore a margin scheme which allows under specific circumstances such goods to have VAT charged on the margin, not the full sale price.

Full details in VAT 718.

 

[neil-ste]

Thanks for the concise answer there. Much appreciated everyone.