Car Service and Repair Shop Accounting: Parts, Labour and Taxes

Labour and parts are two different revenues

The chart of accounts (NAS 21) puts these revenues on different accounts. Parts bought for resale are goods on account 2910 "Goods in stock"; revenue from selling them goes to account 9020 "Revenue from sale of goods" and their cost to account 9120 "Cost of goods sold". Repair and maintenance work produces revenue on account 9030 "Revenue from work performed and services rendered"; its cost is collected on account 2010 "Main production" and transferred to account 9130 "Cost of work performed and services rendered".

Consumables used by the mechanics themselves (flushing oils, rags, sealants, small fasteners) are not goods for the customer but raw materials and supplies on account 1010; they are charged to the cost of work. The boundary between "a part for the customer" and "a mechanic's material" should be fixed in the accounting policy, otherwise the same item will end up on 9020 one day and on 2010 the next.

• 2910 → 9120 / 9020 — parts sold to the customer;
• 1010 → 2010 → 9130 / 9030 — materials, mechanics' wages and other costs of work;
• on the work order, labour and parts as separate lines with quantity and price.

Which tax regime is available

A legal entity whose total income for the year does not exceed one billion soums may pay turnover tax (Tax Code, Article 461). It is a special regime that replaces VAT and corporate income tax (Article 462). An entity can switch from the next tax period by notifying the tax authority at least ten days before that period begins.

The basic turnover tax rate is 4% for taxpayers in all sectors (Article 467, item 1). For retail trade the rate depends on location: 4% in cities with a population of one hundred thousand or more, 2% in other settlements and 1% in remote and mountain districts (Article 467, item 2.1). For individual entrepreneurs (IEs) and the self-employed the rate is 1% (Article 467, item 5), provided their annual sales income does not exceed one billion soums (Article 461).

Above the threshold the repair shop becomes liable for VAT at 12% (Article 258) and corporate income tax at 15% (Article 337). Under this regime it is especially important that suppliers' incoming e-invoices for parts are issued correctly, because input VAT recovery depends on them.

Separate records under Article 468

A turnover tax payer with several activities taxed at different rates must keep separate records for them and pay tax at the rate set for each activity (Article 468, part 1). If, besides repairs, the shop sells parts at retail as a separate activity (a shop on the premises, sales without fitting), that revenue may be taxed at the retail rate and repairs at the general rate. The classification depends on how sales are organised, so check it before choosing a set-up.

Even with a single rate, separating labour and parts is needed for management: it shows the real margin on parts and the mechanics' output. Without it you cannot tell whether a repair bay or the stockroom pays for itself.

The parts stockroom: where money is lost

• A part is issued to a mechanic but not entered on the work order: the goods are written off and there is no revenue. Issues from stock should only be made against a work order number.
• Customer-supplied parts. If the customer brings their own part, it does not belong to the shop and is not taken into stock; the work order shows only the fitting labour.
• Mixing up aftermarket and original parts: one part number is recorded under different names and stock counts do not agree.
• Returns to suppliers and warranty replacements are not documented, so the books show stock that is no longer there.
• Regular stock counts (more often than once a year for high-value items) and reconciling balances with the records solve most of these problems.

Warranty on work and returns

When a customer comes back under warranty, income from the original order may need adjusting. For turnover tax payers the Tax Code expressly provides for adjusting income on the return of goods, a change in the terms or price of the transaction, or refusal of services (Article 466). The adjustment is made within one year, and for goods and services with a warranty period, within that warranty period; supporting documents are required.

A free repeat repair under warranty is a cost with no new revenue. It is worth tracking separately within the cost of work, so you can see which types of repair or which mechanics generate comebacks.

Mechanics' pay

Repair shops often pay mechanics a percentage of the labour charge or by standard hours. The Labour Code allows piece-rate pay: the rate is found by dividing the daily or hourly tariff rate for the grade of work by the output standard, or by multiplying the rate by the time standard (Labour Code, Article 277). For this to work in the accounts, standard hours must be shown on each work order and a pay policy must be approved within the company.

Wages of production mechanics go to account 2010 and form the cost of work; wages of administrators and service advisers are period expenses. Writing off all payroll as one amount distorts the cost of work.

Where to start

• Approve an accounting policy: what counts as a part for the customer and what as a material; the method for writing off goods; how account 2010 is closed.
• Set up the work order with separate lines for labour and parts, and issue stock only against a work order.
• Check which regime is better for your turnover and revenue mix, and whether separate records under Article 468 are needed.
• Fix a procedure for documenting warranty cases and returns to suppliers.