Readers' forum: Revamp

Our clients have recently started a second-hand car business specialising in high-value classic vehicles. They have asked us for guidance on the second-hand margin scheme for VAT. We have reviewed the notes in the VAT Notice 718 and in particular paragraph 3 on the deductibility of expenditure in calculating the margin on which VAT is charged. The notes appear to be specific and the examples in paragraph 3.2 restrict expenditure to the direct costs of acquiring the asset in the first instance and would appear to exclude refurbishment costs preparation for sale marketing photographs repairs and restoration. However our clients who have been in the industry for some years are aware that other firms have been deducting these costs when calculating the gross margin and this approach has not been challenged during visits by VAT officers.

In some instances the...