Work we have actually done.
Anonymised, but real, and set out in enough detail that you can check the reasoning. We would rather show you one true case than six invented ones.
Two years behind, and £11,000 overpaid to HMRC.
Two separate errors, both in the treatment of stock, compounding over eight quarters. One inflated the VAT and the profit on every car. The other quietly drained the cash the business needed to buy the next one.
Two years of margin scheme reporting outstanding and an incomplete stock book. The owner's own sense of what each car made never matched what the accounts said, and the VAT bills kept arriving larger than expected.
Rebuilt the stock book vehicle by vehicle from the original purchase and sale invoices, restated every purchase price on the correct basis, reclassified the VAT qualifying stock, and recalculated each quarter.
Corrected returns filed, £11,000 of overpaid VAT recovered from HMRC, profit restated to what the business was genuinely making, and a stock book the owner can keep current between quarters.
Buyer's premiums left out of the purchase price
The dealer bought most of his stock at auction, where the hammer price is only part of what he actually pays. Buyer's premium, indemnity and entry fees all sit on top, and on trade stock they are not trivial.
The previous accountant recorded only the hammer price as the margin scheme purchase price. Under the margin scheme, VAT is due on the difference between purchase price and selling price, so understating the purchase price inflates the margin on every single car.
Two consequences followed from one mistake. VAT was overpaid on a margin that did not exist, and the accounts recognised more profit per vehicle than the owner was really making — which is why his own figures never reconciled to his accountant's.
VAT qualifying vehicles treated as margin stock
A dealer's stock is not all one thing. Cars bought with a VAT invoice are VAT qualifying: the input VAT is recoverable, and output VAT is due on the full selling price. Cars bought without recoverable VAT belong in the margin scheme. The two cannot be mixed, and the decision is made vehicle by vehicle at the point of purchase.
Historically, qualifying purchases had been swept into the margin scheme, so the input VAT on them was never reclaimed. Nothing offset the output VAT arising on sales in the same quarter.
The cost of that was cashflow. Large VAT payments left the business each quarter that could largely have been offset against qualifying purchases already sitting on the forecourt — working capital handed to HMRC early and recovered late, in a trade where it should have been funding the next vehicle.
Every purchase and sale invoice pulled and matched to a vehicle, so the stock book had one row per car with a full audit trail.
Auction documents unpicked so premiums and fees landed in the purchase price where they belong, restating the margin on each car.
Qualifying stock separated out, input VAT identified, and each affected quarter recalculated on the correct basis.
Errors disclosed to HMRC properly, the refund agreed, and the corrected profit figures carried through to the accounts.
The £11,000 was the visible part. The lasting change is control: the VAT bill is right, less cash leaves the business each quarter, and the owner is no longer wondering whether the figure is correct.
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