Classic car restorers and VAT
Vehicle maintenance, repair and restoration services are standard rated for VAT (with the exception of MOT fees charged by approved testing stations, which are exempt from VAT). You will have to register for VAT if your taxable sales are likely to be above the current VAT registration threshold, and you will then have to charge VAT at the standard rate of 20% on the services you provide - this is known as 'output tax'. You will be able to reclaim any VAT you pay on purchases - this is known as 'input tax'.
Every quarter you will pay HM Revenue & Customs (HMRC) the difference between:
- all the output tax you have charged
- all the input tax you have paid on your purchases
Nearly all businesses have to pay their VAT bill electronically - for example by direct debit or online banking. HMRC allows you some time at the end of each quarter before you have to pay the VAT due. So, for example, the VAT due on sales made in months one, two and three would be paid at the end of month four. Your VAT return will show your payment deadline date.
You will probably already have estimated your monthly sales income. Now decide whether you must register for VAT. If so estimate the approximate amount of VAT that you will have to pay every quarter.
Businesses that are having trouble making their VAT payments, or are worried that future payments will cause them problems, can ask for help from the HMRC Business Payment Support Service. If your business needs this financial assistance to tide it over, HMRC will look at your situation and discuss temporary options that could help out. These could include letting you make payments over a longer period and waiving late payment surcharges. To discuss payment problems with HMRC you can call the Business Payment Support Service Helpline on 0300 200 3835.
Margin scheme for used car sales
If you also buy and sell classic cars reasonably frequently then you may want to take advantage of the special VAT scheme for used car dealers. Usually businesses buying and selling goods can recover the VAT they are charged as input tax on their purchases of stock. But many used car dealers buy stock from members of the public who are not registered for VAT, or from unregistered dealers, so there is no input tax to recover. Instead of having to charge VAT on the full selling price of the cars you sell, the margin scheme allows you to charge VAT only on the difference between what you pay for the vehicle and what you sell it for - your margin.
The scheme is not compulsory and you can use it alongside sales made under the normal VAT rules. However, there are certain record-keeping, invoicing and accounting requirements that you must meet if you want to use the scheme, otherwise you will have to account for VAT on the full selling price of the vehicles. Full details are set out in VAT Notice 718/1 The VAT margin scheme on second-hand cars and other vehicles.
Making Tax Digital (MTD) for VAT
Under HMRC's Making Tax Digital initiative, VAT-registered businesses with taxable turnover above the VAT threshold must keep records digitally and use special software to submit their VAT returns. You can find out more about MTD on the Gov.uk website.
You can contact the VAT Helpline on 0300 200 3700 to request further guidance if you need it. They will also be able to explain the VAT treatment of MOT fees if you are not an approved MOT test centre, but you arrange for your customers' cars to be tested at an approved centre. You can download VAT information publications, including VAT Notice 700/1 Should I be registered for VAT? from the Gov.uk website.