VQOTW: Margin Scheme and sale of converted campervans

My client has started a new business buying second hand commercial vans and converting them into campervans before selling. They also buy existing campervans and repair/refurbish these. My client understands they can use the VAT Margin Scheme for these sales – is this correct? 

Second-hand goods, including second-hand motor vehicles, can be sold on the margin scheme subject to the following conditions:

  • The vehicles must be ‘eligible’.
  • The vehicle must be acquired under eligible circumstances – that is where you have not incurred VAT on its purchase because it was bought from an individual, a non-VAT registered business or sold to you on the margin scheme.
  • You comply with the calculation rules and record keeping requirements.

An ‘eligible’ vehicle is defined in VAT Notice 718/1 section 2.3:

Only second-hand vehicles can be sold under the Margin Scheme. Under the legal definition of second-hand goods, a second-hand motor vehicle is one which:

  • has been driven on the road for business or pleasure purposes
  • is suitable for further use as it is or after repair

Based on the above definition, the obvious issue is with those commercial vans that have been converted into a campervan – this would not meet the second condition as ‘suitable for further use as it is or after repair’ – the conversion has created a different type of vehicle altogether, it is not simply a repair.

Therefore, the sale of these vehicles would not be eligible for sale on the margin scheme, and VAT should be charged on the full selling price as normal. Any VAT incurred on the cost of conversion would be recoverable as input tax.

The sales of existing campervans that have been repaired would meet the definition of second-hand goods, and so could be resold on the margin scheme, with VAT only being accounted for on the margin. Again, the VAT on the cost of repair can be recovered as input VAT but the cost of repair should not be added to the purchase price.

The margin scheme is optional, and so the client can choose to use it for the sale of the repaired campervans but not the conversions, or not use it at all and charge VAT on the full selling price of all of their vehicles.

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Tony joined HMRC in 2015 where he managed a cross-tax Hidden Economy team specialising in failure to notify compliance work and evasion. He developed a sound understanding of VAT as well as gaining significant knowledge of the compliance penalties regime and Schedule 36 compliance powers.

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