Use of Margin Scheme if goods are converted before sale

VAT Question

My client buys and sells second-hand campervans, buying from private individuals and using the margin scheme to account for VAT on these sales. He also buys in vans, again from private individuals and converts them to camper vans and sells on. Can they use the Margin Scheme for the camper van sales?

VAT Answer

Unfortunately, the sale of the campervans that have been converted from ‘ordinary’ commercial vans cannot be sold using the margin scheme as your client is not selling the same item that they purchased.

Article 2 of the VAT (Special Provisions) Order 1995 defines second hand goods as “tangible movable property that is suitable for further use as it is or after repair …….”; this is reproduced in HMRC’s online manual VATMARG02100, see link below

https://www.gov.uk/hmrc-internal-manuals/vat-margin-schemes/vatmarg02100

In your client’s case, your client is buying a vehicle that is designed to enable it to be used for the movement of goods etc but once converted, the campervan is a vehicle designed to be used as accommodation; the vehicle that was purchased is not being sold “for further use as it is” and has not been sold simply “after repair”.

Instead, what has effectively happened is that your client has manufactured a new camper van, with the previous commercial van being one of the parts used in that manufacture.