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VAT flat rate scheme and vehicle sale

Q: My client is a builder on the Flat Rate Scheme. Two years ago he bought a second hand van from an unregistered supplier so no VAT was charged. My client is now selling this van. Do I understand correctly that since the van is being sold for less than it was purchased, he can use the second hand margin scheme and therefore no output tax will be due on the sale?

A: One of the rules of the Flat Rate Scheme is that you are unable to use this scheme in conjunction with the margin scheme (see para 6.4 of VAT notice 733). Your client will therefore have to include the full value of this van sale in his FRS turnover and account for VAT on it accordingly, unless he leaves the FRS first. If he leaves the FRS first, he could indeed use the margin scheme on the basis he bought the van from an unregistered seller, but only if he meets all of the conditions for doing so (see para 2.2 of VAT Notice 718/1, including certain record keeping conditions). You are quite right that, as the van is being sold at a lower price than it was bought for, there is a negative margin, meaning no VAT would be due under the margin scheme.