VAT rules on the sale of assets

If you are a VAT registered business, accounting for VAT on the sale of your goods or services can be relatively straight-forward. However it is also useful to know the VAT rules on the sale of assets. These may be relevant when for example you are selling old equipment previously used in your business.

VAT rules on the sale of assets

In this post, we'll cover the usual scenarios where you need to consider the VAT rules on the sale of assets.

Sale of a motor car

When you purchase a new car for your business then any VAT recovery is usually blocked (see here). The only exception being where you can prove the car is used exclusively for business. This is extremely difficult, though not impossible as one tax case proved recently. 

When no VAT was claimed on the original car purchase, it's not necessary to charge VAT on the sale. Because the recovery of VAT was blocked on acquisition this is treated as a VAT exempt transaction. 

What about second hand cars?

Again, if you purchase a second-hand car where no VAT was recovered, VAT isn't due on the sale either. In the unlikely event you sell for a profit then you'd charge VAT under the second-hand margin scheme

Other equipment

Usually if you  have been charged VAT on the original purchase of the equipment then you'll have to charge VAT on any subsequent sale. 

If you're selling second hand equipment you bought previously, then no VAT is charged on the sale. However, VAT will be due on the margin if you sell it at a profit. 

If you buy brand new equipment from a non-VAT registered supplier (so no VAT is charged on purchase) you'll need to charge VAT on the sale. Unfortunately this type of sale does not qualify under the second-hand margin scheme. 

Property

Generally speaking, where you are selling a commercial building or land, the proceeds are likely to be VAT exempt unless an option to tax has been exercised. However, there are always exceptions, so it's vital to seek specialist advice before entering into any transaction involving land or property.

What about the VAT flat rate scheme?

The Flat Rate Scheme (FRS) was originally introduced to help businesses cut down on their administration.  However the changes several years ago have now made this less attractive to some businesses. Nevertheless what are the VAT rules on the sales of business assets if your business uses the FRS and it buys or sells a fixed asset?

As a starting point your business can only recover VAT where the cost of the asset exceeds £2,000. When the asset is sold the position is as follows: This rule could catch out many business traders if the business car is sold, as the FRS captures all income unless it is outside the scope of UK VAT (which the sale of a car isn’t).

  • Where VAT has been claimed on the purchase then charge VAT on the full sales proceeds
  • Where no VAT has been claimed on the purchase then the sale proceeds form part of the standard FRS calculation

Be aware though that the sale of a business car is potentially chargeable to VAT. This is because the FRS includes all income, unless it's outside the scope of VAT. Unfortunately the sale of a car isn't. 

What happens if you leave the Flat Rate Scheme?

Another trap to avoid is where you sell a business asset where no VAT was claimed originally. This applies where you sale a business asset which cost less than £2,000 after leaving the scheme.

Unfortunately VAT  is still chargeable on the sale, as the FRS percentage would have allowed for the input VAT deduction previously. In other words, as VAT input recovery was not blocked, the sale proceeds are not VAT exempt (see cars above)

For more useful information, check out our Ebooks here.

And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at richard@tfaaccountants.co.uk.

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