Clearly the dealer won't pay you £24k but if for whatever reason you did need to get shot of the car immediately AND the dealer had someone else they could sell the car to there is nothing to stop them buying it for £23k and selling it for £23.5k... then they have the profit from the first sale and another £500 from the second....

The bottom line is that the VAT is a one off cost to the first purchaser. After that the car is worth whatever anyone will pay and VAT becomes irrelevant. A day old car might still be worth £24k to someone who is keen to get one instantly without any delays... To the second purchaser it is still a car worth £24k but maybe less a little for the fact that they are the second person on the V5, nothing else has changed!

Unfortunately, in the real world this just doesn't happen. Even in cases where the buyer quickly realises that they have bought the wrong car, the dealer won't pay that kind of price.

It's extremely rare that 6 month old car will get 80% of the new price in a private sale.

I don't disagree with anything you say there... but where a Skoda Octavia (or any other normal car) is concerned, no-one is going to pay more than the list price ex. VAT for a pre-registered car, even with a 6 month wait.  Why would you buy that car for that amount, when there are plenty of other cars that are slightly used going for a lot less than list.  It's all down to supply and demand.

 

Where you have an 18-month waiting list for an Aston Martin or something else where there are not that many of them, then yes, people will pay more than list inc. VAT in order to skip the queue.  But then they have more money than most and can afford to do so!

 

 

Unfortunately, in the real world this just doesn't happen. Even in cases where the buyer quickly realises that they have bought the wrong car, the dealer won't pay that kind of price.

It's extremely rare that 6 month old car will get 80% of the new price in a private sale.

 

 

Completely agree with you both. Just pointing out that the VAT actually has nothing to do with it! Anyway, apologies to the OP for taking this slightly off topic!

...Just pointing out that the VAT actually has nothing to do with it!...

You're right and wrong at the same time It shouldn't affect prices but it does. There are enough buyers who think that the VAT is 'lost' immediately to depress the perceived value.

Completely agree with you both. Just pointing out that the VAT actually has nothing to do with it! Anyway, apologies to the OP for taking this slightly off topic!

 

How does it have nothing to do with it?

 

The car you buy is worth £20k.  You have to pay £4k of VAT on it, but it's still only worth £20k.  If you can persuade someone to pay more than £20k for it a day later, then congratulations.  But the fact of the matter is that it was only worth £20k to start with.

 

It's the same with anything that has VAT added to the price - the value of the item is actually the ex. VAT price, not the inc. VAT price.  An easy example of this is Starbucks... why do you pay more to eat in?  It's because they have to charge VAT for stuff consumed on the premises, but not if it is consumed off the premises.  VAT does not add value to anything, it just makes it more expensive for the original buyer.

 

So your £24k car only being worth £18k six months down the line isn't actually too bad - it has only lost £2k of value.  However, the person buying it doesn't have to pay VAT on that, so it's actually £6k less than the amount you paid (unless you're one of the lucky* few people who can buy cars ex. VAT).

How does it have nothing to do with it?

 

The car you buy is worth £20k.  You have to pay £4k of VAT on it, but it's still only worth £20k.  If you can persuade someone to pay more than £20k for it a day later, then congratulations.  But the fact of the matter is that it was only worth £20k to start with.

Oh dear!

You can't buy a new car without VAT in the UK. So the value of the item is the current market cost of the item. It's not worth 20% less because you can't buy it without the sales tax.

Now we all agree that the majority of cars reduce in value as soon as you sign the purchase papers, but that has nothing to do with VAT.

Oh dear!

You can't buy a new car without VAT in the UK. So the value of the item is the current market cost of the item. It's not worth 20% less because you can't buy it without the sales tax.

Now we all agree that the majority of cars reduce in value as soon as you sign the purchase papers, but that has nothing to do with VAT.

 

Exactly....

You can't buy a new car without VAT in the UK. So the value of the item is the current market cost of the item. It's not worth 20% less because you can't buy it without the sales tax.

 

No, I can't, and you probably can't.  But businesses can (or, rather, they can reclaim the VAT).  So if a business buys the same car as me, but reclaims the VAT, is theirs somehow worth less than mine?  And I'm pretty sure British Forces stationed overseas can buy a vehicle from a UK dealer and not pay VAT (I think that's how it works).  Is my car worth more than theirs?

 

And back to my Starbucks example - if I take out, is the value of my coffee + toasted sandwich (no VAT charged) less than the next person who eats in (who pays more because VAT is charged)?

 

The value of an item is how much someone is willing to pay for it - not the "current market cost".  See Royal Mail shares for an example, the "current market cost" at IPO was well below their value, as demonstrated by people still willing to buy the shares on the stock market as the price rocketed up by 60%.

 

But if you're still adamant that it has nothing to do with VAT, please do explain why the value drops like a stone the minute you drive it off the forecourt...?

But if you're still adamant that it has nothing to do with VAT, please do explain why the value drops like a stone the minute you drive it off the forecourt...?

It's down to buying preferences and demand. There are some cars where the demand is high that they will pay a premium for a used example. Like a Porsche Macan, people will pay a £10K premium to buy a used one to avoid the waiting list. Equally there are cars like the BMW M6, that will lose £20-30K as soon as it's registered.

Neither of these examples have anything to do with VAT, they have everything to do with buying desirability and demand.

As for companies that can claim the VAT back, if they were to sell that vehicle they have add the VAT. If it drops in value it's due to depreciation and the fact that VAT is added on to that price. It has nothing to do with the VAT on the initial purchase.

Hopefully now you will finally see that VAT has nothing to do with it.

I guess it all depends on whether you see VAT as part of a car's 'value'.  I don't.  I see it as a sales tax, which I'm paying for the privilege* of buying a new car (the clue is in the name - Value Added Tax).  Therefore, I see my car as only being worth the ex. VAT price when I buy it.  If someone wants to buy it off me for more than that (but less than the inc. VAT price) the following day, then I'd argue the value of the car has actually appreciated, not depreciated.

 

So I'll agree that depreciation and VAT can be considered separately, if you'll agree that most cars - due to supply and demand - depreciate from their starting value the moment they're driven off the forecourt (and that starting value is the ex. VAT price (so you do lose the VAT, which is why it gets lumped in with depreciation)).  There are examples - like the Macan - that buck this trend, but you could put money on that not being the case in 12-24 months time when there is a plentiful supply of used Macans for sale.

I don't think he's going to understand no matter how many time you tell him.

 If someone wants to buy it off me for more than that (but less than the inc. VAT price) the following day, then I'd argue the value of the car has actually appreciated, not depreciated.

Mmmmm you could get a job in sub-prime mortgage lending and associated debt sell offs with that logic! ;)

and just to mess with your head, china only has 10% sales tax and they sell the Octavia at a lower price than the UK, so in real terms your car is worth even less. ;)

No one here is disputing that cars depreciate!! What myself and Steve are trying to point out is that VAT has nothing whatsoever to do with the second hand value of the car or the rate at which it is perceived to depreciate.

 

The value of a car to a consumer is what someone is prepared to pay including whatever taxes are added. If you are prepared to pay £24k for a brand new Octavia (including the £4k VAT) then it doesn't suddenly only become worth £20k ten seconds after delivery because of the loss of the VAT.

 

When it comes to reselling it VAT isn't relevant so someone else may consider it to be worth £23k a week after it rolled off the forecourt.  That doesn't mean it's gone up in value by £3k does it???

Edited 11 July, 201411 yr by bouff34

If you are prepared to pay £24k for a brand new Octavia (including the £4k VAT) then it doesn't suddenly only become worth £20k ten seconds after delivery because of the loss of the VAT.

...Yes it does.

Taken from bookkeepers.org.uk regarding depreciation for (business) tax reporting purposes.

 

Read the explanatory blurb, but note the highlighted comment at the end of Example 1, which I believe answers this debate!

 

'Quote'

 

Depreciation

 

Straight Line Method 

Straight line depreciation is calculated by dividing the amount to be written off (cost less estimated residual value) by the asset’s predicted number of years of useful economic life. The figure derived from this calculation then becomes a fixed charge written off each year. 

As an equal amount is charged each year, a graph plotting the upward accumulation of depreciation year by year would appear as a straight line. 

 

Example 1 

******** Ltd purchase a new vehicle for £20,000 plus VAT, paid in cash.

It is estimated to have an economic life of five years with a residual value after the five years of £3,000. 

Using the straight line method, the annual charge for depreciation would be: 

£20,000 purchase price - £3,000 5 year residual value = £17,000 / 5 = £3,400 per annum 

The profits would bear an annual charge of £3,400, while the balance sheet value of the vehicle would be reduced by the same amount each year. 

The book-keeping entries to deal with the purchase of the asset would be: 

Debit the motor vehicles (Fixed Asset) account with £20,000. 

Debit the VAT (input tax) account £4,000. 

Credit the Cash Book £24,000 cash / cheque payment. 

At the year end the ‘Depreciation’ account is debited with £3,400, in respect of the vehicle and the ‘Depreciation provision’ is credited with the same amount. 

Taking this one vehicle, as an example, the year end accounts would include net fixed assets on the Balance Sheet of £16,600 (disclosed as vehicles at cost - £20,000, less accumulated depreciation to date £4,000).

 

 

'Unquote'

 

What this basically shows in taxable accounting terms, in year one, is that although the purchaser has paid £24k for the vehicle, it's residual value is only £16.6K despite it's depreciation only being a calculated £3.4K p.a - thus the £4K VAT is a straight loss.

Note also that the 'purchase price' is continually referred to as £20K, not £24K.

 

Oh, and of course, VAT is a tax, a non-tangible untradable item… it has no resale value!

 

What this basically shows in taxable accounting terms, in year one, is that although the purchaser has paid £24k for the vehicle, it's residual value is only £16.6K despite it's depreciation only being a calculated £3.4K p.a - thus the £4K VAT is a straight loss.

Note also that the 'purchase price' is continually referred to as £20K, not £24K.

Jeez guys, this is not hard.

In the above example, if the company sold that car after the one year, they would need to sell it plus VAT. So your £16,600 car would have be sold for £16,600 +VAT so £19,920. In reality they would sell it for what they could, and any further loss or gain would need to be accounted for.

The VAT of £4K wasn't a loss it was VAT claimed back. You don't show VAT on assets in bookkeeping terms if you've claimed it back. In addition, as they have claimed the VAT on the purchase, they can't sell it without adding the VAT back on. Also note in example above that they paid £24K for the car, and this was allocated to cash account, not £20K.

So again VAT has nothing to do with the valuation of a used car.

In the above example, if the company sold that car after the one year, they would need to sell it plus VAT. So your £16,600 car would have be sold for £16,600 +VAT so £19,920.

 

The problem with your argument is that you seem to think they will then keep the full £19,920 in this example.  They won't, they will then need to pay the VAT to the government, so they will only receive the value of the car (i.e. £16,000).

 

So, a company buys a car for £24,000, and reclaims £4,000 VAT.  Net cost to them of the asset is £20,000.  For argument's sake, let's assume 3 years later the book value (according to CAP or whoever) is £12,000. They manage to sell it for £12,000, but they will have to pay £2,000 of that to the government as VAT.  So, net income is £10,000.  Depreciation on the car (money received for the asset less the money paid for the asset) is £10,000.

 

At the same time, an individual buys an identical car for £24,000.  Again, for argument's sake, let's say after 3 year the mileage/condition etc. is the same, and the individual manages to sell their car for £12,000.  Depreciation on their car is £12,000.

 

And finally, a BFPO in Germany buys the same car but doesn't pay the VAT.  3 years later, the depreciation on his car will be £20,000 - £12,000 (he doesn't have to charge VAT when he sells it) = £8,000.

 

So, no - VAT doesn't have anything to do with the valuation of the used car, as the valuation in each case was identical.  But the amount by which your asset has depreciated (purchase price - sale price) does depend on your VAT circumstances.  And because most of us are in the middle example above, the depreciation we suffer on cars is greater than the others because we pay VAT on the original purchase.

Just to add to the poor lad's confusion.  The VAT on cars - and their depreciation - is treated differently from other items..  A company has to pay the VAT on a car and, as shown above, the value of the car is the ex-VAT price.  However, normally tthe company cannot claim the VAT)

 

From HM Revenue and Customs

 

When you buy a car you generally can't reclaim the VAT. There are some exceptions - for example, when the car is used mainly as one of the following:

• a taxi
• for driving instruction
• for self-drive hire

 

So, as others have said, the value of the car at purchase is the ex-VAT price and, with the exception of the marques already referred to, somebody would need to be as misguided as the OP to think that it could ever be worth more than that after purchase.

 

As for VAT on second hand cars, a dealer will have to charge, and pay, VAT on the difference between what he paid for the car and the selling price - 'the margin'

 

 

You may be able to use the Margin Scheme for second-hand goods to account for the VAT when you sell used vehicles, but you can’t use the scheme for vehicles where there is any VAT shown on the purchase invoice. Under the scheme, when you sell the vehicle, instead of paying VAT on the full selling price, you work out the VAT due only on your 'margin'. This is the difference between what you bought the vehicle for and what you sell it for.

 

Additionally, as pointed out in some of the earliest replies, a nearly new car sold privately will always raise suspicion in the mind of a would-be purchaser on the lines of 'What is wrong with this car that makes him want to sell it so soon?'

 

Will the OP offer to indemnify the purchaser against faults that are not covered by the warranty - such as engine problems due to being driven carelessly without running in?

 

If he will, then the car might be worth that little bit more - provided that the purchaser believes that he will actually get the value of the personal indemnity.

Boycie

 

Nearly new member

 

Selling a nearly new car

 

Free advertising

 

 

 

Would you Adam and Eve it?

 

 

The problem with your argument is that you seem to think they will then keep the full £19,920 in this example.  They won't, they will then need to pay the VAT to the government, so they will only receive the value of the car (i.e. £16,000).

  

I didn't assume anything of the sort. You implied that. You were the one struggling with this simple point.

 

So, no - VAT doesn't have anything to do with the valuation of the used car, as the valuation in each case was identical.  But the amount by which your asset has depreciated (purchase price - sale price) does depend on your VAT circumstances.  And because most of us are in the middle example above, the depreciation we suffer on cars is greater than the others because we pay VAT on the original purchase.

 

Now you are diverting off on a tangent about the differences between a private buyer and a commercial buyer cost of ownership over a period of time that has nothing to do with what we are talking about. There's no point in comparing this.

So, as others have said, the value of the car at purchase is the ex-VAT price and, with the exception of the marques already referred to, somebody would need to be as misguided as the OP to think that it could ever be worth more than that after purchase

The value of the car is what it is purchased at nothing more nothing less. It has nothing to do with VAT. If you can't get that simple principle, I give up. There is no concept that as soon as a vehicle is sold it has lost 20% (=VAT rate)

The price anyone values a car, is at a price that they think the can sell it for. The price it sells for is what someone was prepared to pay for it at the time. Anyone who thinks VAT has something to do with this are deluded.

I didn't assume anything of the sort. You implied that. You were the one struggling with this simple point.

Now you are diverting off on a tangent about the differences between a private buyer and a commercial buyer cost of ownership over a period of time that has nothing to do with what we are talking about. There's no point in comparing this.

The value of the car is what it is purchased at nothing more nothing less. It has nothing to do with VAT. If you can't get that simple principle, I give up. There is no concept that as soon as a vehicle is sold it has lost 20% (=VAT rate)

The price anyone values a car, is at a price that they think the can sell it for. The price it sells for is what someone was prepared to pay for it at the time. Anyone who thinks VAT has something to do with this are deluded.

Keep on digging that hole....

I suppose the OP spends his gross salary - after all tax is irrelevant.  He thinks the value is the amount before tax, so that's what he can spend

Given how long this 'debate' had gone on, I'm now revaluing the OPs car at £17.5K.

Given how long this 'debate' had gone on, I'm now revaluing the OPs car at £17.5K.

Is that inc VAT or exc? ;)

I suppose the OP spends his gross salary - after all tax is irrelevant.  He thinks the value is the amount before tax, so that's what he can spend

Typical dumb arse comment.

Personally I can't believe a number of people on this forum can be so stupid on something so simple. Having said that I'm sure there is still quite a number of people in the world that think it's still flat!!!

Typical dumb arse comment.

Personally I can't believe a number of people on this forum can be so stupid on something so simple. Having said that I'm sure there is still quite a number of people in the world that think it's still flat!!!

 

Personally, I can't believe there are people who become insulting when others disagree with them.