A common VAT question we see from sole traders and small business owners is what happens when business assets are sold on, particularly vehicles.
Does VAT Apply When Re-selling a Van Bought from a Private Individual?
A typical scenario looks like this:
- A VAT registered sole trader buys a van from a private individual
- The purchase price includes NO VAT, as the seller is not VATregistered
- After a short period, the van turns out to be unsuitable and is resold
So the key question is:
Does VAT need to be charged on the resale?
The short answer is yes, in most cases VAT will be due
Let’s break down why..
The Basic VAT Rule
If you are VAT registered, any sale you make in the course of your business is a taxable supply, unless a specific VAT exemption or special scheme applies.
This means that:
- The fact the van was bought from a private seller
- And the fact that no VAT was charged on purchase does not prevent VAT being due when the van is sold.
Once the van is sold by the VAT registered business, VAT law looks at the status of the seller, not the original purchase.
What Does This Mean in Practice?
Under the default VAT rules:
- VAT is charged at the standard rate (currently 20%)
- VAT is calculated on the full selling price, not just the profit
Example
- Purchase price (from private seller): £2,000 (no VAT)
- Sale price: £2,500
VAT calculation:
- Net sale price: £2,500
- VAT @ 20%: £500
- Gross amount charged to buyer: £3,000
There is no input VAT to reclaim, as no VAT was charged on the original purchase
Can the VAT Margin Scheme Be Used?
This is where many business owners become unsure
The VAT Margin Scheme for secondhand goods can apply to vans, provided certain conditions are met. In principle, the scheme allows VAT to be paid only on the profit margin, rather than the full selling price
However, all of the following conditions must apply:
- The van was bought from a private individual or non-VAT registered seller
- The van was purchased with the intention of resale
- Proper Margin Scheme records are kept
- VAT is not shown separately on the sales invoice
The Key Issue: Intention at Purchase
In many real world cases (including the scenario above), the van was:
- Bought for business use, not resale
- Later sold because it turned out to be unsuitable
HMRC’s guidance is clear that the Margin Scheme is intended for dealers buying goods specifically for resale, not for businesses disposing of their own assets.
👉 If the van was originally purchased for use in the business, the Margin Scheme does NOT normally apply.
What HMRC Would Expect to See
If reviewed by HMRC, they would typically expect:
- VAT charged at 20% on the full selling price
- VAT shown clearly on the sales invoice
- No input VAT claim on the original purchase
Trying to apply the Margin Scheme where the van was not bought for resale could lead to assessments, penalties and interest.
Summary
If a VAT registered sole trader buys a van from a private seller and later sells it:
- ✅ The resale is a taxable supply
- ✅ VAT is normally due at 20% on the full selling price
- ❌ No input VAT is recoverable
- ⚠️ The Margin Scheme is unlikely to apply unless the van was bought specifically for resale
How JP Blackmoor can help
Need Advice on VAT and Business Assets?
Vehicle transactions are a common source of VAT errors, particularly where private purchases and later resales are involved.
If you’d like tailored advice on VAT, asset disposals, or HMRC compliance, JP Blackmoor can help.
Get in touch to make sure your VAT treatment is correct before HMRC comes knocking.
