Starting a dealership
Dealer accounting basics
The essentials of dealership bookkeeping — VAT margin scheme, cost of sale, gross per unit and the cash flow patterns every dealer needs to understand.
TL;DR
Track every vehicle as its own mini profit-and-loss: purchase price, reconditioning, transport, funding interest and sale price. Use the VAT margin scheme where eligible, keep a compliant stock book, and reconcile the bank weekly.
Vehicle-level accounting
The healthiest dealerships treat every car as its own mini profit-and-loss. Purchase price, transport, reconditioning, MOT, valet and any stocking-loan interest are all attached to the vehicle. When it sells, gross per unit is the sale price minus all of those costs — not just the buy price.
VAT margin scheme in practice
On eligible second-hand vehicles you pay VAT of 1/6th on your gross profit rather than 20% on the whole sale price. To use it you must keep a stock book with the required fields and must not issue a standard VAT invoice on those sales. Ineligible stock — vehicles bought with a VAT invoice — is treated normally.
Cash flow patterns
Dealership cash flow is lumpy. A slow month can consume a month's overheads before you notice. Model a 90-day rolling cash forecast that includes stocking loan repayments and quarterly VAT bills. Reserve at least three months of fixed costs in a separate account.
The KPIs that matter
- Gross per unit (retailed and finance combined).
- Days in stock and stock turn.
- Lead-to-sale conversion.
- Reconditioning cost as a percentage of sale price.
- Return on capital employed (net profit ÷ average stock value).
General guidance only. Speak to an accountant experienced with the motor trade for specific tax or reporting advice.
Frequently asked questions
How is dealer accounting different from a normal business?
Stock is the entire balance sheet. Each vehicle has direct costs that must be attributed to it before you can measure real gross profit.
What is gross per unit?
Sale price minus purchase price minus reconditioning, transport and any funding interest — the true margin on that vehicle.
Do I need Xero or QuickBooks?
Yes — both integrate with modern DMS platforms and simplify VAT returns significantly. Lotra exports vehicle-level cost data straight into them.
How often should I reconcile?
Weekly at minimum. Monthly reconciliation lets errors compound and hides theft or fraud.
What is Making Tax Digital?
HMRC's requirement that VAT-registered businesses keep digital records and submit returns through approved software. It applies to all VAT-registered dealers.
Related guides
What is a Dealership Management System (DMS)?
The foundational guide to DMS software, its core modules, and why independent dealers need one.
Switching from spreadsheets to a DMS
A step-by-step migration plan for dealers moving from Excel and Google Sheets to Lotra.
Vehicle inventory management for car dealers
How modern inventory management works — from auction purchase to sold, without spreadsheets.
See it inside Lotra
Lotra is the operating system for independent dealerships. Inventory, CRM, finance, listings and AI insights in one workspace.