Dealer profit margins

[Dave1971]

The rules are slightly different for used cars though as VAT is paid on the dealers profit not the total sale price

That's not quite correct. The dealer pays 20% vat on the difference between the buying price and the selling price.

For example a dealer buys a car from auction for £16k and sells it for £20k so a nice 20% mark up. The vat is £800.

But out of the £3200 left the dealer now needs to pay all the other business overheads like gas, electric, phones, building maintenance, business rates.

Then you need to fix anything that is wrong with the car. The different departments in a main dealer act like separate businesses so when the sales person puts the car into the workshop they don't get any special benefits, they pay through the nose just like we do.

Then there is the sales persons commission, probably only a couple of hundred quid but it all comes out of the pot. There's also the none productive staff like the dolly bird on reception, the guy who washes all the cars, the sales manager, dealer principal and maybe even a share holder or two.

Suddenly that £3200 is spread very thin indeed, the "profit"
is probably very small. In fact if the car turns out to need a bit too much work in the workshop then it's quite easy to make a loss because no matter what the tax man still wants his £800.

All I missed out was the word gross i.e. 'VAT is paid on the dealers gross profit not the total sale price', what you have done is explain how gross profit becomes net profit.

That's true but it's an important distinction that had not been made up until that point. The vat on the gross profit of £4k is £800, the vat on the net profit of say £400 is £80.

The guy actually getting the biggest slice of the (gross) profit is very probably the tax man.

[Rockhopper]

I used to work in a shop where we bought items in to sell on. We paid VAT on the difference between the buy in price and the selling price. Used cars are the same. It’s up to the dealer if he chooses to pass that cost onto the buyer.
VAT on vans is different, as it depends on if the original purchaser was VAT registered or not and claimed the VAT back. This could also apply to cars bought by a business. VAT in this instance is paid by the buyer, not the dealer. The dealer still has to pay his VAT on the margin though as above.

[MikeyH]

Money for old rope

[ronk]

Out of curiosity I did a check of the identical car to mine - I looked at its MOT history - All I can say is that it has had a very hard life!

Bent wheels, Cracked wheels, shockers, bald tyres. split tyres !

The MOT history page is an excellent tool for a buyer.