The Ins and Outs of Taxation for Car Sales Businesses

Taxation is an essential part of running any business, and car sales businesses in the UK are no exception. However, navigating the complex world of taxes can be challenging for new and experienced entrepreneurs. This article aims to provide a comprehensive understanding of the various taxes car sales businesses in the UK are subject to and the responsibilities and obligations that come with them.

Value Added Tax (VAT): VAT is a consumption tax applied to most goods and services in the UK, including cars. Car sales businesses must charge VAT on their sales and must register for VAT with HM Revenue and Customs (HMRC) if their annual taxable turnover exceeds the current VAT threshold of £85,000.

Standard and Reduced Rates: Cars sold in the UK are typically subject to the standard VAT rate, currently at 20%. However, there are certain circumstances where a reduced rate of 5% or even a zero rate may apply, such as selling qualifying electric or adapted vehicles for disabled people.

Second-Hand Margin Scheme: Car sales businesses selling used cars may be eligible for the Second-Hand Margin Scheme. This scheme allows businesses to pay VAT only on the profit margin made on each sale rather than the entire sale price. To qualify, the business must purchase the used cars from a VAT-registered supplier or a private individual within the UK or EU.

Corporation Tax: Car sales businesses operating as limited companies are required to pay Corporation Tax on their profits. The current Corporation Tax rate is set at 19%. In addition, companies must calculate their taxable profits, including those from selling cars, and file a Company Tax Return (CT600) annually with HMRC.

Business Rates: Business rates are taxes levied on non-domestic properties, such as car showrooms and dealerships. First, the rates are calculated based on the property’s ‘rateable value’, determined by the Valuation Office Agency (VOA). Then, the rateable value is multiplied by a multiplier set by the government to calculate the final business rates bill.

National Insurance Contributions (NICs): Car sales businesses, like any other employer, are required to pay National Insurance Contributions (NICs) for their employees. These contributions are divided into Class 1 (primary and secondary), Class 1A, and Class 1B. Employers are responsible for deducting the employee’s share (Class 1 primary) and paying the employer’s share (Class 1 secondary) to HMRC.

Employee Income Tax: As an employer, a car sales business must also deduct Income Tax from its employees’ wages and salaries through the Pay As You Earn (PAYE) system. The employer is responsible for calculating and deducting the correct amount of tax based on each employee’s tax code and personal allowance.

Vehicle Excise Duty (VED): Vehicle Excise Duty (VED), or road tax, is levied on vehicles used on public roads in the UK. Car sales businesses must ensure that any vehicles they sell have the correct VED paid before the new owner can use the vehicle on the road.

Capital Allowances: Car sales businesses can claim capital allowances on certain purchases, such as vehicles and equipment used for business purposes. These allowances enable businesses to deduct the cost of these assets from their taxable profits, reducing their Corporation Tax liability.

Understanding and complying with the various taxes applicable to car sales businesses in the UK is crucial for their success and growth. Proper tax planning and timely compliance with all tax obligations can help businesses avoid fines, penalties, and other legal issues. Consulting with a tax professional or accountant is recommended.

If you need help to plan your taxes, please contact Tax Accountant at 0800 135 7323 or email info@taxaccountant.co.uk for expert advice.