If your business accounts for VAT under the flat rate scheme, the sale of a second hand car creates an unwelcome complication – the car must be included in the flat rate takings for the period. This means that although there is no VAT charged on the sale, and no VAT would have been reclaimed on the purchase of the vehicle, the business must account for VAT at their normal flat rate on the proceeds of sale.
Accordingly if you sell a car for £1,000 and your VAT flat rate percentage is 10%, you will have to pay £100 to the VAT man!
If the sale price of the car is considerable, the only possible solution is to exit the flat rate scheme before sale, but this extreme step would only be appropriate if enough cash was at stake. It is not then possible to rejoin the scheme for 12 months.
If you use the flat rate scheme and will be selling a second hand car in the near future please call so that we can examine the best strategy for you.