If your company buys and sells second-hand goods you may be eligible to use a VAT Margin Scheme.
A VAT Margin Scheme taxes the difference between what you paid for an item and what you sold the same item for. VAT is paid at 1/6 (16.67%) of the difference (margin).
Business overheads, repairs and parts/accessories cannot be used when calculating the margin. VAT on these expenses are reclaimed on the VAT return in the normal way.
If there are additional sales made by the same business which fall outside of the Margin Scheme then the ‘Standard’ VAT rules will apply.
A vehicle with 2 previous owners is purchased for £3,500. The same vehicle is then sold for £5,000.
- The difference or profit is £5,000 – £3,500 = £1,500.
- VAT is calculated as £1,500/6 or £1,500 x 16.67% = £250.
- On your VAT return this would show as the following:
Box 1: £250 (The VAT calculated)
Box 6: £4,750 (The full selling price less the VAT due on the margin)
Box 7: £3,500 (The full purchase price)
No figures are needed for box 4, 8 or 9.
Some nitty gritty details:
The VAT Margin Scheme is not only for second hand goods but for those selling works of art, antiques or collectors’ items. There are also a few exemptions such as precious metals, investment gold and precious stones who cannot use the scheme.
When using the Margin Scheme, a stock book must be kept which tracks each individual item sold under the Margin Scheme with corresponding Sales and Purchase invoices. An exception to this record keeping can apply to Horse/Pony’s where a three-part form can be acquired and used from The British Equestrian Trade Association (BETA) instead.
There are some special rules which apply to certain circumstances such as:
- Any vehicles that have been adapted for wheelchair users which are zero-rated (the marginal scheme would not apply)
- Houseboat/Caravans – this all depends on the VAT liability of the item which is being sold (Is it Zero-Rated?)
- High Volume and low priced items – a scheme called ‘Global Accounting Scheme’ would be more appropriate.
- Dealers, pawnbrokers and Auctioneers – further information is required if agents sell a product for you.
- Goods sold or brought inside and outside of the EU – different VAT rules can apply to transactions outside of the EU.
There is no application to use the scheme required. If you believe that you fit the criteria then you may simply start using it on your next VAT return. If you are unsure then please call us and we can advise accordingly.
If you have any questions about the Vat Margin Scheme please call Vincent & Co on 01803 500500 and we’ll be happy to discuss this with you.