VAT increase will mean a reduction in used car profits for dealers

According to Glass’s Guide car dealers face a reduction in used car profits because of the VAT increase taking place in January.

It warned there would be reduced profits on cars purchased this year and not sold until 2011.

A VAT qualifying car purchased in 2010 for £10,000 and retailed to a private retail customer before the end of the year attracted VAT at 17.5 per cent worth £1,750.

“If this car is not retailed until 2011 VAT will be payable at 20 per cent, amounting to £2,000. This means that the net profit is reduced by £250,” said Glass Guide managing editor Adrian Rushmore.

“This may not seem a large sum at first glance, but if the net retained profit on the car was £750, to have this eroded by £250 represents a loss of 33 per cent.

“Moreover, the multiplier effect for several units of stock makes the sums look more sinister,” he added.

As most dealers operated a stocking policy of between 30 and 60 days cars purchased for stock in late October will be sitting on forecourts on 1 January.

“As we approach the end of the year an increasing number of purchases will remain unsold by the beginning of next year,” said Rushmore.

Rushmore said it was more pronounced with VAT qualifying cars because the tax is paid on the full amount of the purchase price.
For margin cars VAT is paid on the difference between the buying and selling price.

Source: Motortrader.com