[Kate]

Hi and please help!

I help my brother to run a 4x4 mechanics and we recently purchase a commercial Landrover for renovation. The vehicle we purchase + VAT. Its now all ready for sale. Obviously we need to sell the vehicle with VAT, but we have an interested party who would like to do a "straight swop" for a non commercial vehicle.

Our vehicle is valued at 10k + VAT. Our prospective buyers vehicle is valued at 11.5 k. What happens if we go ahead with the swop? and how does the VAT work if we then sell his vehicle??

We don't want to get caught out and since we've already claimed the VAT back on the purchase initially I wonder where this leaves us!! help!

Thanks in advance


Kate

[IP2]

Hi Kate and Welcome to A1

One of our more qualified Accountants will possibly correct me here, but I would of thought it is a 'swap' only in name, and that you have sold the vehicle therefore VAT will be due and purchased a private vehicle from a non VAT party.

Don't take that as gospel though. I am sure Peter, James, Boxby or similar, will be along soon with a definitive answer.

All my best
IP2

[boxby]

Hi there

Thanks for the vote of confidence IP2. But on this one I can only go with gut instincts rather than knowledge. HMC&R will look at the two as two seperate transactions.

I think HMC&R will still want their £1750. Is is a VAT registered company that you are doing the swap with. If so it shouldn't be an issue, it would just be about wording/invoicing etc.

[Peter W]

I agree with the previous answers - there are 2 separate transactions.

From VAT Notice 700 (The VAT Guide):

"8.7 Barter and part-exchange

If you supply services, or new or second-hand goods, and receive
other goods or services in full or part-payment, two separate supplies
take place. There is a supply of goods or services from you to your
customer and a supply of goods or services by the customer to you."

So HMRC will still want their £1,750 on your vehicle.

What happens with the new vehicle depends on the VAT status of the seller, whether there is any VAT on this vehicle, and the use to which the vehicle is put. Just treat it like any other vehicle that you buy.

[Kent Tiger]

I could be wrong about this, but under VAT rules is there any obligation to sell at market value? Why not just make the selling part of the transaction at a huge loss?

[IP2]

Originally Posted by Kent Tiger

I could be wrong about this, but under VAT rules is there any obligation to sell at market value? Why not just make the selling part of the transaction at a huge loss?

Wouldn't that just open up a bigger can of worms of tax implications on selling the acquired vehicle further down the road? (excuse the pun!)

[Peter W]

Originally Posted by Kent Tiger

I could be wrong about this, but under VAT rules is there any obligation to sell at market value? Why not just make the selling part of the transaction at a huge loss?

For both parties to be happy, there would have to be an agreement for each vehicle to be sold to the other party at a huge loss, and then you are essentially back to a barter exchange.

[Kate]

Hi Everyone,

Wow you guys are good!

Just trying to get my head around this - what about if we do this....

We raise an invoice to our seller showing the sale as 10k + VAT and he raises an invoice knocking our VAT amount off his selling price ie - he wants 11,500 but his invoice reads 11,500 - 1750.

Would that keep customs happy?? he is just a private seller, so not VAT registered.

Am actually just hoping he manages to sell his 1st - fingers crossed!

[IP2]

His invoice to you should not mention VAT at all as he is not VAT registered.

[James Smith]

Kate,

that isn't quite right.

Your write out an invoice for £11,750 (ie £10k+VAT)
They write out an invoice for £11,750.
No cash changes hands.
HOWEVER - you then pay HMRC £1,750 on the sale (assuming you are on the normal vanilla scheme for VAT)

If you think about it you have already reclaimed from HMRC the VAT on the purchase, plus VAT on your costs of renovation so its not quite as bad as it sounds but might well not be the deal you meant it to be!

NB if you are giving them a £250 discount to your sales price to bring it down £11,500 (their value) then you would presumably write your invoice out at £9787.23+VAT=£11,500 which will benefit you slightly as the VAT due to HMRC would be less. This is ok so long as its a normal commercial transaction. Ie you would presumably haggle on the price of vehicles in the ordinary course of your trade.

+ apologies to Peter for stepping on his toes on this, but I don't think he is about on the forum during the working day, he tends to be an evening poster.

Regards,