My take on "You lose the VAT" myth (1 Viewer)

[Cheshirecat57]

This is just my take- not the gospel, but based on my own 40 years of experience in the Motor Trade ( 20 years Cars / 20 years Trucks)
I also have heard it this year ( 2 many times unfortunately) by Sales people, some of which actually believe it

Two factors actually drive 1st year depreciation;-
1/ Dealer profit (BTW Dealers HAVE to make a profit to be there for us when we need them)
2/ Customer desire

The example is a broad brush example , so don't hang me by the detail

New Motor Home by MotorSnoozer Campervans say has Price of £60,000 AFTER negotiation, the transaction price.
If customer buys one of these, the dealer expects to make £5000 after he has done his vat return (ie paid vat to his supplier and collected vat from you)

A used Motor Home is NOT SUBJECT TO VAT, it is ZERO rated.
But, and this is a big but (not a big butt which is something else) , the PROFIT MARGIN of a Vat registered dealer is subject to VAT. So to make the same £5000 nett, dealer has to start with £6000(inc vat) margin

This is where Customer desire comes in... How much will a customer give for a USED ( even if only slightly used) vehicle, if he/she can have a brand new, colour-of-choice one for £60k??
May I suggest at least £5k behind list, otherwise just order a new one

So dealer has to screen price at £55,000 with a £6000 'margin' which is actually a £5000+vat margin

QED- He has to stand it in at £49000- which is an £11000 loss from the £60000 that someone paid OUCH
But it's not the "VAT" that did it to you HMRC are just an easy 3rd party 'explain' to a miffed punter

So the worst hit models are the High Volume, high Discount, readily available models. The more attractive at the front end, hits hard IN THE SHORT TERM at the back end

Just my take on it, don't shoot

 

[funflair]

So the moral of that story seems to be "make sure it is for you before you buy it"

Martin

 

[Cheshirecat57]

So the moral of that story seems to be "make sure it is for you before you buy it"

Martin

Yup- but it came as a shock to me that despite the "40 years experience" I couldn't choose a MoHo to save my life SWMBO chose this new one.

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[hilldweller]

It's a myth that crops up a lot.

If you buy a TV for £100, you have a £100 TV and you might be able to sell it for £100 if you don't like it. You don't take it home and say "here is my £83 TV" do you.

 

[funflair]

Yup- but it came as a shock to me that despite the "40 years experience" I couldn't choose a MoHo to save my life SWMBO chose this new one.

Hope she got it right then

Martin

 

[jtp890]

Then vat discount for disability, makes selling second hand very profitable?

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[Cheshirecat57]

Then vat discount for disability, makes selling second hand very profitable?

Ahh, that is a simple question with a not-so-simple answer

If a dealer gets involved with such a vehicle, known as a VAT “qualifying” vehicle, then he can/should charge VAT on the lower nett price( that has not been charged previously
However I suspect that many such type sales drop 7nder the vat inspectors radar. I also confess to not knowing all the rules relating to disability reclaim. Eg is there a minimum time limit before re-sale.

 

[Cheshirecat57]

Then vat discount for disability, makes selling second hand very profitable?

To (partially) answer my own question, you can sell the qualifying vehicle after any amount if time, but you can only buy another one after 3 years has elapsed from the previous one, unless written off or stolen and not recovered

 

[WillH]

Years ago a lecturer on economics was attempting to explain taxation to me, he had the attitude that v.a.t. was a non-optional tax but we had the ability to decide how much we paid which made it flexible. His reasoning was that we decided how much we were prepared to pay, i.e. how much the goods or services we bought cost, cheaper is less tax, more expensive is more tax.

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[RidersofRohan]

Those are very interesting figures, and something I didn’t understand.
However doing the maths my way.
Here is a £55,000 motorhome which the dealer will be liable to pay £1,000 in vat, so motorhome = £54,000 and vat = £1,000. This motorhome was purchased for £60,000 by the original owner and that was made up of £50,000 for the motorhome and £10,000 vat. So how has the price of a second hand motorhome increased by £4,000 (compared to when it was new)?
That’s the bit I never understand where dealers are selling 3 or 4 year old Motorhomes for more than the price paid by the original owner when Vat is taken out of the figures.

 

[nicholsong]

Moral of story - keep away from new, or nearly-new, market.

 

[Cheshirecat57]

Those are very interesting figures, and something I didn’t understand.
However doing the maths my way.
Here is a £55,000 motorhome which the dealer will be liable to pay £1,000 in vat, so motorhome = £54,000 and vat = £1,000. This motorhome was purchased for £60,000 by the original owner and that was made up of £50,000 for the motorhome and £10,000 vat. So how has the price of a second hand motorhome increased by £4,000 (compared to when it was new)?
That’s the bit I never understand where dealers are selling 3 or 4 year old Motorhomes for more than the price paid by the original owner when Vat is taken out of the figures.

QED- The original VAT makes no difference to the 2nd hand Price- unless it suits the 'story' being told at the time

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[Richard n Ann]

Vat 'adds value' to the product simply by making it more expensive... So 2nd hand items that aren't subject to vat also have a proportional added value/price.

That's how I see it anyway.

 

[Cheshirecat57]

Vat 'adds value' to the product simply by making it more expensive... So 2nd hand items that aren't subject to vat also have a proportional added value/price.

That's how I see it anyway.

I need to get my head around that....

 

[RidersofRohan]

If Vat was abolished tomorrow. A new van would cost £50,000 and a second hand one wold cost £54,000. No one would buy second hand: but that is how it is now.

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[two]

The government grant on electric cars will reduce on Nov 9.
I imagine that second-hand values may rise a bit, as a result.

 

[Cheshirecat57]

If Vat was abolished tomorrow. A new van would cost £50,000 and a second hand one wold cost £54,000. No one would buy second hand: but that is how it is now.

The riddle is
“Who really sets the PRICE of a second hand item?

The seller thinks it is him....the buyer thinks it is him

 

[Richard n Ann]

If Vat was abolished tomorrow. A new van would cost £50,000 and a second hand one wold cost £54,000. No one would buy second hand: but that is how it is now.

Yes nobody would buy the second hand one and it would be instantly devalued to 45,000

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[ymfb]

It’s always the buyer who sets the price, the dealer must sell for the highest price he can, but if nobody buys the vehicle, the price will come down, until someone buys it.

The trick is finding the right vehicle at the right time.

My problem in recent years has its been easier to buy new, negotiate the best deal I can fairly make. Generally I find it’s easier to negotiate additional items and service as the dealer loses less and I get more.

 

[gus-lopez]

So how has the price of a second hand motorhome increased by £4,000 (compared to when it was new)?

If you followed that logic then no one would buy anything if the first purchaser was being stiffed with paying & losing all the vat.

If Vat was abolished tomorrow. A new van would cost £50,000 and a second hand one wold cost £54,000. No one would buy second hand: but that is how it is now.

No it probably wouldn't happen as the dealers would look at it as their additional profit & to be used to play 'rope-a-dope' with deals.

 

[PeteH]

My Dad, Used to say, that every time someone took a new car over the kerb outside the dealership onto the road. It had already lost a large amount, as it was already "Second Hand". Back then B-V (before Vat) you had purchase tax and vehicle tax on top of that. Just like Now, You have Petroleum Tax (on Fuel) which is then taxed AGAIN with VAT!.

There will always be TAX. Gordon (the moron) loved intrrducing Stealth Taxes.

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[Northernraider]

The riddle is
“Who really sets the PRICE of a second hand item?

The seller thinks it is him....the buyer thinks it is him

I suppose with second hand the old story of it's only worth what someone is willing to pay for it still stands.

 

[Rapido925M]

There will always be TAX. Gordon (the moron) loved intrrducing Stealth Taxes.

NOT ME!

Gordon

 

[PeteH]

NOT ME!

Gordon

No, He of the one eyed scot`s varioety!. Who thought he was a financial genius, whilst bankrupting the country, robbing pension funds and generally taking all sort of "tax" by the back door.

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[xsparks]

I thought VAT was introduced to bring us in line with Europe, when we joined the Common Market. I guess when we leave we won't have to pay it anymore.

 

[Puddleduck]

No, He of the one eyed scot`s varioety!. Who thought he was a financial genius, whilst bankrupting the country, robbing pension funds and generally taking all sort of "tax" by the back door.

And who according to my brother-in-law could do no wrong.........

 

[The Wino]

I agree the VAT thing is a myth the price of anything is the price someone can sell it for. Remember the seller of a new motorhome is not just paying 20% of the price to the VAT man they are reclaiming 20% VAT on the manufacturers price to them they only pay net VAT on the margin they make.

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[nicholsong]

I agree the VAT thing is a myth the price of anything is the price someone can sell it for. Remember the seller of a new motorhome is not just paying 20% of the price to the VAT man they are reclaiming 20% VAT on the manufacturers price to them they only pay net VAT on the margin they make.

You of course mean a 'dealer/agent seller'

 

[GWAYGWAY]

With car I thought it was a case being bought in from a punter no tax, sold to a new punter and the VAT is due on the service given, price in and price out, it is the difference that is due for 20% tax which will be part of what the second punter pays the dealer. Smoke and mirrors.
Buy privately and pay less than from a dealer and the seller get more of his money he paid back as well. Just no shark hovering around them both.
PS I thought the Cheshire cat image smile reminds me of a second hand car dealer greeting or even worse, Tony Blair as he sticks a knife in somebody

 

[gerry mcg]

My take on it is the cost of a new van or any product) has 2 components...eg.
1)the vehicle cost and
2)the VAT element.
These add to get the actual cost to the first buyer.
If the first buyer sells at say 1 day or 1 yr.... Why should they be expected to bear the entire cost of the VAT?
Surely if they can sell the item for any price, and some of the VAT element to the initial purchase price is passed on to the next buyer to depreciate.

Eg, let's assume a rare, desirable van with a c2 yr waiting list costs £50k ex vat and has a £10k VAT liability, and there costs £60k retail.
The initial buyer has to front up the VAT so pays dealer £60k, and the dealer passes the £10k VAT to H RC.
Now 6 months later the initial buyer wants to sell.
The van price is not automatically £50k because VAT has already been paid.... The seller can command any price, (perhaps even more than the original £60k depending on desirability, immediately avaibility, increased new prices etc)
Ultimately, the VAT element is not written off imm, rather is deprecated across the lifespan of the van and if the initial buyer is entitled can recoup some of the VAT component they were obligated to pay up front with the initial purchase in the selling price to the second buyer

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