VAT Treatment of Vehicles Purchased at Auction

It has come to our attention that many Navigator users are incorrectly calculating the Purchase Price of a vehicle bought at auction when adding it to the system. The VAT ruling on which items of the Auction Price can and cannot be added to the Stock Book Purchase Price when calculating the VAT.

As always, it is not straightforward and depends on how the fees are calculated, what they are for and whether the auction charges VAT separately or not.

It is worthwhile reviewing VAT notice 718/1 with specific regards to the section on the treatment of vehicles purchased at Auction.

To assist, the relevant paragraphs have been published below – this is from the above Vat Notice issued in Jan 2016.

If you want to use the Margin Scheme (or Global Accounting, if you are buying vehicles for scrap) for the onward sale of a vehicle you have bought at auction, you must check whether the vehicle you want to buy is eligible for onward sale under the scheme.

If the auctioneer charges VAT separately on the hammer price of a vehicle you buy, you won’t be able to use the Margin Scheme or Global Accounting for your onward sale.

Your purchase price will be the hammer price of the vehicle plus charges for services.

The invoice you get from the auctioneer will itemise, for each lot you have bought, the hammer price of the goods and any charges for services (for example, buyer’s premium). These charges must not show VAT separately.

This will be your purchase price for the purposes of the Margin Scheme or Global Accounting, and is the amount that you must show in your stock book. It should be clearly identified on the invoice you get from the auctioneer.

If the auctioneer bills you for any other services, and charges VAT on them separately, you can reclaim the VAT under the normal rules. You must not add those charges to your own Margin Scheme purchase price. To avoid confusion, you may want to ask the auctioneer to provide you with a separate invoice for such charges.

If you are in any doubt about what your Margin Scheme purchase price should be for a vehicle you have bought at auction, you should check with the auctioneer.

When you buy a vehicle at auction, you will usually be charged an indemnity fee. This is a charge which ensures that you will have compensation or indemnity if the vehicle you have bought is later found to have been stolen or to have finance outstanding on it.

You must not include the indemnity fee in your purchase price for Margin Scheme purposes.

Before the sale is due to take place, you should discuss with the auctioneer whether you want it to be treated under the Auctioneers’ Scheme or under the normal Margin Scheme. (The Auctioneers’ Scheme is a special variation on the normal Margin Scheme. It works by creating a margin which is equal to the auctioneer’s charge for his services to both the vendor and the purchaser.)

If the auctioneer uses	The invoice will include	Your Margin Scheme selling price will be
The Auctioneers’ Scheme	* the hammer price of the goods. * his commission charges. * the net amount payable to you. None of these amounts should show VAT separately. Any other charges for services must be invoiced separately.	The hammer price less the commission charge.
The Margin Scheme	The hammer price of the goods. VAT must not be shown separately on this amount. The auctioneer’s commission and any other charges for services must be invoiced separately.	The hammer price.

Your selling price for Margin Scheme purposes should be easy to identify from the invoice you receive. You should check with the auctioneer if you are in any doubt.

If the Auctioneers’ Scheme is used, you will be invoiced separately for any other charges.

You can reclaim the VAT on these invoices under the normal rules but you must not deduct the charges from your Margin Scheme selling price.