What's It Worth? What’s it not worth.

[The Wino]

Is that logically correct?

Imagine I build something out of components on which, for our purposes, VAT has been settled.

I now sell the thing I build for more than the cost of those components.

VAT is due on the price of the thing minus the price of the components on which VAT has already been settled.

The price of the thing, alas, is subject to market price pressures.

I need to sell for 100 (including VAT) to make a profit. But I only manage to sell for 90 (including VAT).

So VAT is paid and I don't make a profit. I keep doing this, I keep paying VAT and I keep not making a profit.

Give me an example. Do you mean you buy something that has a cost price that equals £100 including vat that you reclaim or that costs £100 net of vat?

Just to give an example if the cost price after reclaiming vat is £100 on buying it in you will have reclaimed the vat on the gross price of £20. When you sell at a loss at £90 including vat you will pay vat on the sale of the vat fraction being 20/120 so £15. Your net vat payable is -£5

 

[L' Hobo]

VAT margin schemes

How to use VAT margin schemes - records you need to keep, invoicing and VAT return reporting

www.gov.uk

Using the VAT margin scheme for second-hand vehicles

Find out how to use a margin scheme to account for VAT if you buy or sell second-hand vehicles (VAT Notice 718/1).

www.gov.uk

Thanks for that jim , but as I wrote in the first sentence, I thought the post was buying & selling NEW vehicles.

From what is written in the links, it appears to only apply to Second-hand vehicles as it states,

NO NEW VEHICLES

NO vehicle invoice with VAT shown separately.

Vehicles already sold under normal VAT rules etc.

Have a good New Year!

 

[PaulW2]

Give me an example. Do you mean you buy something that has a cost price that equals £100 including vat that you reclaim or that costs £100 net of vat?

Just to give an example if the cost price after reclaiming vat is £100 on buying it in you will have reclaimed the vat on the gross price of £20. When you sell at a loss at £90 including vat you will pay vat on the sale of the vat fraction being 20/120 so £15. Your net vat payable is -£5

Sure, but if I'm buying something in, say a Fiat Ducato and various conversion bits, for £ 10,000, and then expend my blood sweat and tears to turn it onto a campervan, I then need to sell it for a price that replenishes my precious body fluids.

For this purpose I need to sell for £ 12 k. I only manage £ 11 k. On which VAT has to be paid, not?

 

[Otter Spotter]

It’s fascinating that an automotive magazine (forgot which one) calculated a while ago that if you build a vehicle by purchasing all its parts as spares, the resulting vehicle would cost at least triple its normal selling price, excluding labour costs!

I would love to see that article as we designed and had built a 2 berth PVC 6 yrs ago , buying a new van and with build costs and all the kit, at that time it cost us around £31,000, since then improvements have cost about £3,500 extra. Similar spec van would have cost £55,000 to £59,000 then, now at least £69,000.
Was it worth doing it this way, I think so the van has cost us the equivalent of £6,000 per year less costs of alternative holidays (we average 12 to 15 weeks away in it not including odd 1 or 2 nights) and resale value. I don’t think we could have afforded hotel or cottage holidays for the same amount of time away and have the same amount of flexibility.

 

[L' Hobo]

Give me an example. Do you mean you buy something that has a cost price that equals £100 including vat that you reclaim or that costs £100 net of vat?

Just to give an example if the cost price after reclaiming vat is £100 on buying it in you will have reclaimed the vat on the gross price of £20. When you sell at a loss at £90 including vat you will pay vat on the sale of the vat fraction being 20/120 so £15. Your net vat payable is -£5

Remembering, of course, that there is a difference and

20% ON a £100 is £20.

20% OFF a £100 is NOT £20.

 

[PaulW2]

Remembering, of course, that there is a difference and

20% ON a £100 is £20.

20% OFF a £100 is NOT £20.

You may have meant to phrase that differently, but 20% of £ 100 is £ 20, whether you add or subtract it.

But if you've lost 20% of £ 100, then 20% on the remaining £ 80 won't get you back there; you'll need 25%

 

[The Wino]

Sure, but if I'm buying something in, say a Fiat Ducato and various conversion bits, for £ 10,000, and then expend my blood sweat and tears to turn it onto a campervan, I then need to sell it for a price that replenishes my precious body fluids.

For this purpose I need to sell for £ 12 k. I only manage £ 11 k. On which VAT has to be paid, not?

It's still a gross profit! In the context of the previous conversation I was having with a different poster they said main dealers often make payments of vat in large amounts then suggested it's often difficult to make a profit. My point is that if you are consistently paying large amounts you are consistently making gross profits of five times that amount. Of course gross profit and net profit are two totally different things and other overheads can still mean a net loss but that's the same for any vat registered buisness.
In your example if it costs £10 k plus vat and you sell for 11 k the net vat payable is £166.

 

[The Wino]

Remembering, of course, that there is a difference and

20% ON a £100 is £20.

20% OFF a £100 is NOT £20.

Exactly my calculations I thought. Do you make it a different amount?
Vat payable on something costing £100 net is £20. The vat reclaimed on something costing £100 including vat is £100 times 20/120

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[The Wino]

I would love to see that article as we designed and had built a 2 berth PVC 6 yrs ago , buying a new van and with build costs and all the kit, at that time it cost us around £31,000, since then improvements have cost about £3,500 extra. Similar spec van would have cost £55,000 to £59,000 then, now at least £69,000.
Was it worth doing it this way, I think so the van has cost us the equivalent of £6,000 per year less costs of alternative holidays (we average 12 to 15 weeks away in it not including odd 1 or 2 nights) and resale value. I don’t think we could have afforded hotel or cottage holidays for the same amount of time away and have the same amount of flexibility.

I think Randomstop is right about a vehicle where you buy parts to make the vehicle but not when converting an existing van

 

[PaulW2]

It's still a gross profit! In the context of the previous conversation I was having with a different poster they said main dealers often make payments of vat in large amounts then suggested it's often difficult to make a profit. My point is that if you are consistently paying large amounts you are consistently making gross profits of five times that amount. Of course gross profit and net profit are two totally different things and other overheads can still mean a net loss but that's the same for any vat registered buisness.
In your example if it costs £10 k plus vat and you sell for 11 k the net vat payable is £166.

Are you sure?

My blood, sweat and tears (for our purposes salary) requires the thing to be sold for £ 12 k. And yet, dammit, HMRC want VAT on my realised £ 11 k. Don't they?

 

[L' Hobo]

You may have meant to phrase that differently, but 20% of £ 100 is £ 20, whether you add or subtract it.

But if you've lost 20% of £ 100, then 20% on the remaining £ 80 won't get you back there; you'll need 25%

20% ON a Pound= 20p

20% OFF a Pound =17p

In other words, £0.83 + 20% = £1.00

 

[PaulW2]

20% ON a Pound= 20p

20% OFF a Pound =17p

That answers a different question. 20% of a pound is 20 p.

So 20% on or off a pound is £ 1.20 or 80 p.

A pound divided by 1.2, so that you can get back to a pound by adding 20% to the new number, is 83.33p

 

[L' Hobo]

Exactly my calculations I thought. Do you make it a different amount?
Vat payable on something costing £100 net is £20. The vat reclaimed on something costing £100 including vat is £100 times 20/120

See post 101.

 

[L' Hobo]

That answers a different question. 20% of a pound is 20 p.
ox
So 20% on or off a pound is £ 1.20 or 80 p.

A pound divided by 1.2, so that you can get back to a pound by adding 20% to the new number, is 83.33p

You have got the last bit correct but the sentence above is incorrect.

20% ON a Pound is £1.20
20% OF a Pound is £0.20
20% OFF a Pound is £0.17 approx

 

[The Wino]

See post 101.

Yes I think we're doing the same calculation

 

[PaulW2]

You have got the last bit correct but the sentence above is incorrect.

20% ON a Pound is £1.20
20% OF a Pound is £0.20
20% OFF a Pound is £0.17 approx

I think you're wrong and that's not what the words mean, but let's leave it at that.

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[1090alex]

I don't believe what you say and you clearly don't believe what I say! But vat is a value added tax it's not possible to consistently run without profit and pay

I don't believe what you say and you clearly don't believe what I say! But vat is a value added tax it's not possible to consistently run without profit and pay vat .

Unfortunately it is possible to make a loss on a vehicle and still have to pay a large amount of vat on it.
Converting a vehicle from a panel van to full camper spec adds value but not necessarily profit as the cost of converting is huge.
Example
Van cost excluding vat £30,000.
Converting excluding vat £17,000
Extras excluding vat £3000
Total siv £50,000
Selling price in vat £60,000
Total siv including vat £60,000 (£10,000 vat due on £60,000)
No profit. In fact if you spend more than £20,000 on the van you make a loss.
Its all unfortunately due to the huge added value converting a van to a motor caravan creates.

 

[1090alex]

Those hypothetical figures quoted for the van and any extra were without vat as it can be reclaimed.

Those figures ive quoted as costs are with the vat already deducted.

 

[CazPaul]

Unfortunately it is possible to make a loss on a vehicle and still have to pay a large amount of vat on it.
Converting a vehicle from a panel van to full camper spec adds value but not necessarily profit as the cost of converting is huge.
Example
Van cost excluding vat £30,000.
Converting excluding vat £17,000
Extras excluding vat £3000
Total siv £50,000
Selling price in vat £60,000
Total siv including vat £60,000 (£10,000 vat due on £60,000)
No profit. In fact if you spend more than £20,000 on the van you make a loss.
Its all unfortunately due to the huge added value converting a van to a motor caravan creates.

Surely you woukd do your figures beforehand though and work out what you pay for the initial van, converting costs, then what you can sell it for, taking into account any costs including vat.
All this needs to be worked out before you decide what to sell it for.
You wouldn’t convert 10 say, then lose money on every one, a business would convert one or two first and see if they sold for an amount that gave a profit.

 

[gus-lopez]

I was vat registered .It was quite simple if it had vat on it when purchased I reclaimed it,regardless. When I sold anything vat was deducted from the selling price & paid to the vat man

Unfortunately its not that simple.
Campervans were my line of work.
A hypothetical example.
Buy a VW panel van for say £30,000 plus vat.
Claim back the vat so the van stands you £30,000. However you may have to wait for 3 months to reclaim the vat.
Conversion costs approximately £17,000 plus vat. Van then stands you £47,000 plus 20" alloys,side bars,extra cosmetic paint all for conservitively £2,500
Van now stands you around £50,000 . Sell for £65,000 ,vat due around £10.800.
Add that to the costs van now stands £60,800 gross margin £4,200 if the customer doesn't ask for a discount.
HMRC gets £10.800 in vat dealer ends up with around £4,000 and has to pay staff,advertising, all day to day costs and of course tax......

It is not even worth doing unless you can do the conversion yourself & 'lose' the vat,

Buy a van for £30,000 plus vat.
,claim the vat back

Spend £20,000 plus vat on it

But i would have reclaimed the vat. regardless.
You are vat registered to collect the money for gov.uk ,not to be penalised for working for them. If you pay an accountant to do the vat for you the expense is deductable as is any vat. Why would you do it yourself without earning anything? I never

SIV is therefore £50,000ex vat.

& you need to be selling for far more than the figure below

Sell for £60,000 including vat means you retain £50,000..... simples

or you have to sell +vat or charge a higher price. but as I said above unless you can do it yourself a 'profit' of 4200 is not worth it when expending that amount

You may have meant to phrase that differently, but 20% of £ 100 is £ 20, whether you add or subtract it.

But if you've lost 20% of £ 100, then 20% on the remaining £ 80 won't get you back there; you'll need 25%

Unfortunately it is possible to make a loss on a vehicle and still have to pay a large amount of vat on it.
Converting a vehicle from a panel van to full camper spec adds value but not necessarily profit as the cost of converting is huge.
Example
Van cost excluding vat £30,000.
Converting excluding vat £17,000
Extras excluding vat £3000
Total siv £50,000
Selling price in vat £60,000
Total siv including vat £60,000 (£10,000 vat due on £60,000)
No profit. In fact if you spend more than £20,000 on the van you make a loss.
Its all unfortunately due to the huge added value converting a van to a motor caravan creates.

As above it is not even worth doing.

As an aside in the early 90's I bought an absolutely basic poverty spec peasant mobile for the wife. Somehow I was given an invoice that showed the new car priced at less than 50% of what I had paid?
Queried it with the financial man at the dealers.
"Oh sorry, that is an invoice price for the vehicle if it was sold in Denmark" "They have to be priced at near cost as the Danes add 100% import tax."
Further discussion about prices & vat & why I could not recaim it all as although they were in the business they had private use & he then said
" When you buy a new car we can invoice you for the price of the absolutely basic vehicle. We can then generate a second invoice showing all the extras the vehicle is fitted with" "That means that you can reclaim all the vat on the extras"
Which is what I did from then on & for every year afterwards until the day I stopped working.
As long as it is possible to purchase a basic vehicle without all & any additions extras then it is perfectly legal to reclaim the vat on the 'extras' as fitted but rarely will any dealer now tell you that.

 

[1090alex]

Surely you woukd do your figures beforehand though and work out what you pay for the initial van, converting costs, then what you can sell it for, taking into account any costs including vat.
All this needs to be worked out before you decide what to sell it for.
You wouldn’t convert 10 say, then lose money on every one, a business would convert one or two first and see if they sold for an amount that gave a profit.

Hi,
Obviously you make a profit on most of your vans. However its not always as much as people sometimes think.
The main unknown is what you will eventually get for the vehicle.
Its one thing putting a price on the screen ,its another actually getting it!
Most customers will try for a discount.

 

[1090alex]

deducted

That's correct, you reclaim the vat you've already paid out on any purchases.
When you sell the price includes 20% vat unless its a margin vehicle.

 

[1090alex]

Those hypothetical figures quoted for the van and any extra were without vat as it can be reclaimed.

Those figures are with the vat already deducted

 

[Tombola]

You are vat registered to collect the money for gov.uk

Exactly this..we are all just tax collectors and it just gets passed to the next consumer to go on and on.

In my business the core materials cost eg pennies..
When they are turned in to products with quite a lot of labour involved the VAT difference between the raw materials vat claimed and the end product vat charged can be easily more than 10 times the cost of the vat on the raw materials.

Not my problem..its the vat man's money

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[BigSamstired]

They lose 20% of their value the instant you drive away. Those selling between years 2 & 4 always take a larger hit then they begin to level off.
We've just spent £140k on a 2023 N&B Arto 88 which was £205k when newly registered 27 months ago - the dealer probably paid £130k for it. That's a massive hit for the original owner, a double whammy as it's for medical reasons C1 has been lost.

I remember talking to a guy who'd been in the MH sales business for years. He said pretty much same as you. It loses 20% almost immediately, or as he put it, it loses what you paid in VAT which is 20%