Do I have to pay VAT on a commision I make from selling cars full time? (UK)?

Question

If I start a business selling cars but have no starting capital and get cars from people sale or return, should I have to pay VAT on the profit or is it just tax because it will be a commision?

What if the commision I make doesn't exceed the VAT threshhold? Doesn't that mean I don't have to register for VAT therefore I wouldn't have to pay VAT. I've already spoke to my accountant and hes not sure.

In reference to Davy B. If I own my own garage premises and get cars S.O.R. and if I register for tax and I am self employed then for example get a car S.O.R for £5000 then sell it for £6000, then pay the person I got it from the £5000 after I am paid does that class as aquiring title therefore am turning over £11000? If so does that mean they would have to pay the owner of the vehicle the full amount and they would give me the commision(which would be impracticable)?

In reference to Davy B. If I own my own garage premises and get cars S.O.R. and if I register for tax and I am self employed then for example get a car S.O.R for £5000 then sell it for £6000, then pay the person I got it from the £5000 after I am paid does that class as aquiring title therefore am turning over £11000? If so does that mean they would have to pay the owner of the vehicle the full amount and they would give me the commision(which would be impractical)?

Answer 1

As an agent and if you are registered for VAT, you will pay VAT on the commission you earn from the sale of the cars. You will have to register for VAT if your commission exceeds £61,000 in the previous 12 months or is expected to exceed £61,000 in the next 30 days.

The level of your profit and the fact that you have no capital, makes no difference.

Added
If your commission does not exceed the VAT threshold then you do not require to register for VAT and so you do not charge VAT on the commission. Your accountant may be concerned about whether you will actually be acting as an agent. If you are not, then the taxable income for VAT purposes will be the profit made on the sale. This should take you above the VAT threshold much quicker than a commission figure would.

Added (2)
Presumably, in the example you give, you do not actually pay £5,000 up front, but are selling the car on behalf of the owner. In that case the car never belongs to you. When it is sold for £6,000, you charge £1,000 as commission on the sale and it is this £1,000 that is your VATable income. If your VATable income exceeds the registration threshold (currently £61,000) you have to register for VAT and charge VAT on the £1,000. You will have to be careful how you word your agreement with the seller so that it is clear that you are selling the car on his behalf, not that you are buying the car from him.

Answer 2

Refer

Answer 3

1

Answer 4

At the end of each month you need to look back over the past 12 months [that is on a rolling basis] and see if your commission in that year has exceeded £61000. If it has you need to register for VAT and you will be registered from the 1st of the month after that. [Exceed limit in year to 31st December 2007 registered from 1st Feb 2008] and you then add VAT to your commission. But there are several things to be clear about. You need to be self employed not just paid "commission" by an employer. The Revenue will check and advise you. It is unlikely that if you work for one employer you will be self employed.

If you sell cars for other people and do not in any way own [acquire title] then you do just base your turnover on the commission. [The seller would have the right - for example - to take back the car from you at any time]

If you buy the car and sell it on the turnover limit for VAT is based on the overall selling price but you only pay VAT on the "profit" on what is called a "margin scheme". Part of the scheme is that you have to - as might be expected - keep decent records of stock and of the buying and selling price and of the addresses of buyer and seller

Answer 5

If your turnover (ie commission) exceeds or is likely to exceed the current threshold for registration (currently £61,000 per annum) you will have to register with HM Revenue & Customs and pay VAT at the Standard rate of 17.5% on all commissions.

If the commission your receive is currently less than 61k p.a you will not have to regsiter unless you think it is likely to go over this within a 12month rolling period in the future .

You should consider in advance what your commission charges excluding VAT therefore you can plan what will be left over after you have paid the VAT you owe to the VAT man)

eg if your commission would be £100 ex VAT you would charge your customer £117.50. £17.50 would then be payable to the VAT man (after claiming back VAT on your purchases etc)

Answer 6

If you get goods on 'Sale Or Return', then you become the 'retailer' - it is not commission.

If the chargeable sales of VAT rated items are more than £60,000 (I think the figure is about that at present, check with your Customs & Excise office), then you will be liable to charge and pay VAT.

Not sure that you will be able to get S.O.R. cars without having a registered company - but there's no harm in asking.

Answer 7

Before paying VAT you will need to register. There are minimum limits of turnover per quarter and year to qualify.

Once registered, you will be liable because you are providing a service. The good news is you will be able to reclaim any VAT you pay out for busines purposes.

Contact your local VAT office (they are in the phone book), and surprisingly, they tend to be nice people.

additional
VAT and Tax are different things. You will probably be liable for both if your business is worth running.

Answer 8

You will have to pay and charge VAT depending on your turn over as I understand it.

The business link pages give lots of info

Answer 9

No sure, but change accountants quick

Answer 10

no! you have to pay tax. You need to declare this to the Inland Revenue.