How to calculate VAT under Margin Scheme for Used Car Business in UAE

Profit Margin Scheme

The Profit Margin Scheme is a method by which a Taxable Person calculates Tax on the profit margin earned on a supply, instead of the sale value. 

The VAT Margin scheme is designed to be used by VAT registered businesses that buy and sell secondhand goods, works of art, antiques and collector’s items. It allows the seller of such goods, under certain circumstances, to pay VAT to Government only on the difference between the price he bought them for and the price he sold them for.

To avoid double taxation where second hand goods are acquired by a registered person from an unregistered person for the purpose of resale, the VAT-registered person will be able to account for VAT on sales of second hand goods with reference to the difference between the purchase price of the goods and the selling price of the goods (that is, the profit margin). The VAT which must be accounted for by the registered person will be included in the profit margin.

The Profit Margin Scheme is made available only on supply of certain specified goods, and  not services.

Supply Of Goods under Profit Margin Scheme in UAE:  How to calculate VAT under Margin Scheme for Used Car Business in UAE

• Second-hand goods, i.e. tangible moveable property which is suitable for further use as it is, or after repair
• Antiques, i.e. goods which are over 50 years old
• Collectors’ items, i.e. stamps, coins and currency

Need For Profit Margin Scheme: How to calculate VAT under Margin Scheme for Used Car Business in UAE

Goods purchased from Non -VAT Registered Person:

Profit Margin Scheme is applicable majorly on second-hand goods on which VAT has already been levied at the time of its first time sale. When these goods are purchased by registered second-hand goods dealers usually from unregistered consumers, VAT is not charged and therefore no input tax is recoverable by the second-hand goods dealer on the purchase. Hence, when these goods are sold by the second-hand goods dealers, it would not be right for the dealer to  to pay VAT on the full sale value, as it would lead to double taxation on the goods. As a result, for such supplies, a provision to pay VAT only on the profit earned on the supply has been given.

Goods purchased from VAT Registered Person:

There can be instances where registered second-hand goods dealers purchase used goods from registered persons. In this case, the supplier will levy VAT on the supply. If the second-hand goods dealer is opting for the margin scheme for supply of these used goods, the dealer is not eligible to recover this input tax paid. If the second-hand goods dealer is not opting for the margin scheme, the dealer is eligible to recover the input tax paid.

Conditions for supply of goods under the Profit Margin Scheme: How to calculate VAT under Margin Scheme for Used Car Business in UAE

The supply of goods under the Profit Margin Scheme should fulfil either of the following conditions:

They should be purchased from either:

• A person who is not registered under VAT or
• A Taxable Person who supplied the goods under the Profit Margin Scheme

OR

• Input tax should not be recovered on the purchase of the goods

It must be noted that input tax cannot not be recovered on the goods supplied under the Profit Margin Scheme

A person supplying goods under the Profit Margin Scheme is not required to notify the FTA regarding the same. For the transactions which meet the criteria of the Profit Margin Scheme, the person can levy VAT accordingly and report such sales in the regular VAT return.

 How to calculate VAT under Margin Scheme for Used Car Business in UAE

The profit margin is the difference between the purchase price of the goods and the selling price of the goods.

How to calculate VAT under Margin Scheme for Used Car Business in UAE

The profit margin  is taken to be inclusive of tax. Hence, the amount of tax to be paid needs to be back-calculated from the amount of profit margin.

Formula for calculating Profit Margin.

Tax amount = Value inclusive of tax * tax rate ÷ (100 + tax rate)

Understanding with a Scenario:

When goods are purchased from an unregistered person

Example: A VAT registered second-hand goods dealer, Taj Used Cars, purchases a used car from a consumer, Mr. Rashid. The purchase price is AED 20,000. After the required repairing and refurbishing, Taj Used Cars supplies the car to another consumer, Mr. Siraj, for AED 25,000.

The profit margin of Taj Used Cars on the supply is:

AED 25,000 – AED 20,000 = AED 5,000 (Selling price- purchase price).

The profit margin is inclusive of tax. Hence, the tax to be paid can be calculated as shown below: Value inclusive of tax = AED 5,000

Tax rate = 5%

Hence, tax amount= 5,000 * 5 / (100 + 5) = AED 238.

For second-hand goods dealers, the Profit Margin Scheme is a good scheme for paying tax on supply of second-hand goods. The benefit of opting for the margin scheme is that the dealer needs to pay tax only on the margin earned on sale. This is very useful for dealers who mostly purchase used goods from end customers. As there is no applicability of input tax recovery on these purchases, these dealers need to pay tax only on the margin earned on sale. However, dealers opting for the scheme should ensure that input tax has not been recovered on the purchase of these goods.

Need to upgrade to Reach online VAT Accounting Software : How to calculate VAT under Margin Scheme for Used Car Business in UAE

Reach can be used for new and used car dealers to manage their sales and purchase documentation and manage sales commissions across branches. Reach accountant software is properly designed to fit all of the desires for a success running of the enterprise. The software may be used in industries ,buyers ,producers, outlets,  workshop ,commercial enterprise projects and so forth. It’s an accounting software program which can   manage your ebook of accounts, taxes, inventory, sales, purchases and many more  online speedy and securely.

Why Choose Reach Accountant Online VAT Accounting Software:

• Affordable, no monthly fees, no contract, no commitment, buy once and use it forever
• Works On Cloud
• 100% Secure and encrypted database files, with ability to add user level security
• All-In-One Financing, wholesale, retail, out-of-state, basic accounting, with repair shop apps
• Dependable and reliable with proven records
• Easy to use & friendly, support multi users mode (client-server technology) with basic network configuration you can get access to your inventory from anywhere in the world.
• Developed with experience and long-term vision for small, mid and large dealers

Reach Online VAT Accounting Software   includes products that assist in the operations of automobile retailers. These products can assist with both front and back office tasks, and  provide tools for inventory; cost calculation, financing, and authorization—for both cars and customers (e.g. credit reports, accident history, etc.).Reach Software  also offers features for preparing and storing warranty information, sales contracts, tracking auto repairs, appraisals, and recurring e-payments. Car dealer products are typically used by the sales team and office administrators in new and/or used car dealerships.

Reach Online VAT Accounting software automates and streamlines some of the redundant tasks that vehicle dealers face in their daily back-end office to front-end business. These tasks can be listed as follows:

• Track financial accounts related to invoicing and ledger;
• Manage inventory of used and unused vehicles;
• Generate customized reports related to accident history and credit reports;
• Optimize cost of vehicle repairs.

These are just some of the tasks that auto dealer software can help you automate. If you are a part of a sales team and office administration at an auto dealership, using Reach Online VAT Accounting software will help you manage tasks much more efficiently. The software also integrates with customer relationship management (CRM) and sales applications to offer you more scope in managing sales and customers separately.

The software provides solutions to help streamline your auto dealership business to enhance sales, manage customer relationships, and franchise locations. Here are some benefits of Reach Online VAT Accounting software that can help you boost vehicle sales:

• Improve marketing: Reach Software can help business broaden their customer base and increase vehicle sales volume. Software streamlines marketing tasks such as managing campaigns for the sales of used cars on social media, which can be monitored through a user-friendly dashboard and analytical tools.
• Accelerate your CRM: Reach software helps you manage customers through multiple communication channels like phone, email, text messaging, and social media to log customer queries and resolve complaints related to vehicle repair and sale of new or used vehicles. Reach software can help your sales rep manage leads by maintaining and tracking communications channels with prospective customers.
• Simplify backend and frontend: Reach Software helps you manage work orders, inventory, sales reports, and other back and front-end data that would require you to input data manually. With Reach software, you can maintain customer database that makes entering details of the customer based on their license ID for future communications simpler. The software also sends automatic reminders to customers when their vehicle service is due through SMS text messages.

   Reach Online VAT Accounting Software one stop solution. Best Online VAT Accounting Software for Automobiles and Used Car Dealers in UAE: How to calculate VAT under Margin Scheme for Used Car Business in UAE

Reach VAT Software has all the features which will easily sync into your business for                       smooth functioning of business operations.

• Do you find it difficult to manage multiple dealer locations?

If your car dealership has more than one location or franchises then one of the challenges that you might be facing is coordinating with these franchise outlets. Multiple car dealerships make it a little difficult to share customer information, car servicing, and sales leads. However, a cloud storage solution availability in Reach Software, centralizes your information repository to work collaboratively with other car dealership outlets.

• Is managing inventory of used and unused vehicle as well as spare parts a key business challenge?

Keeping track of your vehicle inventory can be streamlined with Reach software as it provides a listing of the vehicles on your website. All you have to do it update your inventory whenever you receive new or used cars from original equipment manufacturers (OEMs) or customers. Lastly, car dealer software notifies your service centers when you are running short on spare parts.

• Do you find it difficult to manage customer database and credit reports?

Reach software helps you create custom forms with report builder features and adds extra fields to personalize documents based on customer loan requirements. Simplify the process of giving insurance to customers by reducing paperwork through auto-generated credit reports that are synced to credit loan bureaus.

Top Features of the Reach Online VAT Accounting Software for Automobiles and Used Car Dealers:

Digital Agreements: Create Agreements on the Tab and get it signed digitally from your customer. Save agreements on the Cloud and  helps the customer with super fast documentation.

• Inventory Management: Easily Manage Your Inventory With Help of Reach Online VAT Accounting Software :
  • Update vehicle inventory records for sold and trade-in vehicle.
  • Record trade-in unit on stock card or add vehicle to inventory system.
  • Record cost of sold unit on stock card or in inventory systems.
  • Add needed reconditioning estimates to stock card or inventory system as applicable.

       Probably the most important aspect for the used vehicle dealer is good inventory   control. Know your market — Analyze your sales trends and compare them to vehicles in your inventory. The unit sells well in your market; and Your sales people can sell the unit profitably after reconditioning costs. Reach online Accounting Software enables to keep a track on the process till final sale is done.

• Online Sales : Increase online sales and generate more leads via the internet with Reach web based software. Reach has developed a low cost solution for used car dealers. It has many of the great features and has the capability to import and export from just about any medium. In addition to importing and exporting from car portals the dealer has the option to manually add cars via the ecommerce website which is easily integrated to Reach Online VAT Accounting Software . The online software also comes with a premium image uploader. Dealers can also choose to export their data to other online portals.
• Accounting Management: All functions relating to accounts are inbuilt with the software. You can manage your Accounting Ledgers, Bank & Cash Operations, Purchase & Sales Estimates, Warehouse Allocations, Expense Recording, Expense Grouping, Payments – Part or Full, Journal Entries, Income and loss a/c, Balance sheets, Receipts – Part or Full, Contra Entries, Financial Reports, Day book.

• Tax Management: Our accounting Software automatically calculates the taxes relevant for every bill created. The Software is designed as per the government norms for calculation of VAT. It also has the option to add any number of taxes relevant to the business. In case of change in tax percentages a change it in the software on your own. All you have to do is add your tax percentage and our software will calculate the taxes automatically. This multiple tax scheme can also be applied to multiple products on a single purchase.

• Income Management: The Company can create Quotations then the same can be converted as a Sales order or Pro-forma invoice or Invoice. From Invoice you can create Receipts as well. Accountants will be able to know what payments have been received and what are pending in the reports. You can also set reminders for receiving payments.

• Expense Management: You can create Purchase Orders then the same can be converted as bill or payments. You can also create Debit notes for purchase returns. Accountants will be able to know which purchase bills have been paid and which are pending in the reports. You can also set reminders for making payments.
• Invoicing: Generates VAT compliant invoice of the company in the specified design as requested by the client or can choose from the available templates in the software. It also converts quotes to invoice .One of the features is the software can convert the Foreign currency invoices to base currency and further calculating the VAT at UAE standard rate.

         ·            Business Automation: Leads from all sources,Leads extractions via mail server,Converting leads to appointments,Quotes,Converting quotes to Invoices,Email-SMS update,Delivery status update,Work pending strategye.

• Business Intelligence Dashboard: The software has a feature of providing you key statistics of the business at any given point of time.The dashboard displays work status, profit and loss, expenses graphically.It also features  best Selling Executive, Highest Selling product, Largest value customer for the month. Every night the client gets a SMS summing up the entire sales , expenses ,case production ,and stock value for the day.

·         Print Tax Invoice In Arabic: Reach software lets you print invoices in Arabic, English or both, as per the mandated guidelines of GAZT and FTA.

• Auditor View: Full-fledged Financial reports, Tax reports VAT reports, read process by auditor, with e-filing options, PF & ESI Reports, Tax Consulting Modules are some to be named.
• Check Post for VAT returns: As the software has been designed exclusively to aid individuals and entities to be VAT compliant in UAE, the set of rules and regulation laid by FTA (Federal Tax Authority) of UAE are embedded in the software. Hence any process error will be popped up by the application can be viewed .For instance wrong Tax Registration Number, incorrect taxable figure, wrong taxation period.
• Automatic Update on Tax legal Sections: As the Reach software are cloud computed software gets upgraded to update any revised tax laws and section if any in future.
• Computation Of VAT Returns: The software is inbuilt with all the detailed crucial information  on tax computation Tax Assesee can  fetch all the details of all the taxable transactions It lists down transactions which are included and excluded in the VAT return  calculate input tax, reverse charge and output tax to avail claim if any 

• Filing Of VAT Returns: The registered businesses in UAE are required to generate the VAT return File from their accounting software, login to the FTA’s e-tax portal and upload the return file. On the basis of the uploaded return file, the e-tax portal will validate the file and accordingly the details from the file will be auto-populated in the online return form. Reach VAT software is designed to ease the process of filing returns and comes under the purview of FTA prescribed set of rules and regulations.

• * VAT Reports etc.
• Calculate VAT automatically.
• VAT support in Sales, Purchase, Sales and Purchase returns, Journal entries.
• Generate Federal Tax Authority compatible tax reports.
• VAT Paid (charged by suppliers) and Vat Collection (Charged to customers) Analysis.
• Transaction wise details of VAT paid and VAT collected.
• Attach every Vendors/Customers VAT number and other details.
• VAT supported for Goods (stocked) and Service (non-stocked) items.
• Online application accounting.
• VAT Account Reconciliation, VAT Collection & VAT Paid analysis report.
• Report export to excel and other standard formats.
• VAT returns statement compatible with Federal Tax Authority standards.

Online accounting VAT software enables you to file vat returns, manage accounts and other business operations from any geographical area be it at the comfort of the house.

• Receipt: Receipts can either be manually entered or imported it in excel format easily.
• Payments: Payments can either be manually entered or imported it in excel format easily.
• Multi Company: Manage business through comfort of the smart phone.
• Tally Import: Tally files can be easily imported to Reach Software of various periods and manage business easily.
• Auditor’s Report: Full Financial Report are available,Read process by Auditor,Tax Reports,VAT Report with e-filing options,PF & ESI Reports,Tax Consulting Modules are some featuress mentioned.
• Mobile Application: Access business information through tabs and android smart phones, pick photos of expense vouchers and attach to expenses, daily profitability and other key reports can be viewed on phone.
• Bank Synchronization: Bank Statements can be imported in to Reach software through excel files.
• Security: There is complete security of data stored in the hard disk. Data can be accessed and control by creating access restriction. One time password facilities also ensures a check in the log in to the website.

• Run Business from anywhere: The business can be run access data from anywhere at your comfort. Just like checking mails from the laptop or systems.

• Free and Automatic Upgrades: At Reach Accountant you will be provided free services of upgrading the software frequently with new features and use it absolutely free.

• No investment in expensive hardware: The software is browser based. It just requires internet connection which can be connected to multi computers without using LAN and servers.

• API: The client can integrate the existing software with Reach accounting application ,

• Automatic Data Backup: Reach stores all the data in servers offsite with regular backups. Hence business information is safe and secure

·         User Interface & Complexity:The software is designed to make its use friendly and easy,no cumbersome process to operate the application and software.

• Scalability:It is an VAT accounting software which can scale with your business needs. . Some software companies offer only one version of the product and some have progressive versions depending the business type or size. Reach Accounting software offers both integrated an entry level version as well as a feature rich version which you might not need for the current business processing but will definitely need in future for business development.

• Calculation Of Profit Per Car: Calculate the cost of every car sold and profits made real time.Helps you quote the right prices and reduces losses.

• Outsourced Accounting: The software enables to finish the outsourced accounts in less than 30 minutes.

• Real Time Accounting: Allows client to record sales and purchases online, while finalizing accounts that is checking the Audit trail, providing MIS reports, checking Tax reports, printing financial reports and filing taxes.

• Accounting for the VAT margin scheme: Our range of accounting templates are designed to ease the whole process of record-keeping, invoice generation & VAT return preparation for used vehicle traders. They have been designed with the FTA requirements and are certain to save you time and prevent  financial losses.

Other Features are

• Collections Management
• Customer Database
• F&I Management
• Financing Management
• Form Printing
• Lease Management
• Parts Management
• Sales Management
• Service Department
• Used Car Lot
• Barcode Scanning
• Commission Management
• Customer Account Profiles
• Discount Management
• Ordering Automation
• Pricing Management
• Retail Management
• Returns Tracking
• Sales Tracking
• Document Management

Technology Used:

Reach has implemented the latest technology Cloud Computing to handle  day to day business transactions just  a click away from your browser from any part of the world.

Cloud Computing is a concept through which organizations can manage their data centres, processes and applications online via internet on the scheme of pay for use basis. Many of today’s small businesses find great advantages when adopting a virtual office environment. Rather than maintaining one centralized business location, employees are given the opportunity to work from home and connect via computer. Virtual offices can stretch across the country, or even exist within a small geographic area while still providing benefits to both employees and employers. Yet certain business functions need to be managed differently in a virtual environment. When it comes to accounting, a cloud system can improve virtual office management, especially for tasks such as expense tracking and financial report consolidation.

Benefits of Cloud Accounting

1. Spread the cost of the software by making payments by monthly subscription instead of one lump sum.
2. All the upgrades for cloud accounting software are carried out by the supplier at no extra cost, so you are always on the latest version.
3. You can access cloud accounting software anywhere that has an internet connection, so no need to use a particular computer or be stuck in the office.
4. As the name suggests, all the data is stored securely in “the cloud” which means on the supplier’s bank of servers, continually backed up, so you never have to worry again about using up your own hard-drive or taking regular backups.

Best of all, with cloud accounting software, your accountant can share your data, so they can help you if you are stuck on recording certain transactions in your accounts, like the purchase of a new laptop.  They can post their year-end journals directly, so your data is always up to date, but more importantly we can be more help to you.  For example if you would like your accountant to check the figures for your VAT Return or even file it,or prepare some management