What is the VAT margin scheme?
A business can use the VAT margin schemes in order to pay tax on the the difference between what it pays for an item and what it sells it for, rather than the full selling price. VAT is paid at 16.67% (one-sixth) of the difference.
You can only use the margin scheme when you are selling certain things:
works of art
Sherwin Currid Accountancy understand all aspects of accounting including VAT and the application of the VAT margin scheme. Please get in touch if you would like to find out more about how we can help support you.
When you cannot use the VAT Margin Scheme
The main situations where you are not allowed to use the VAT margin scheme are:
the sale of any items that when you bought you were charged VAT
Completing a VAT return when using the VAT margin scheme
If you are using the VAT margin scheme then you will need to show details of any goods you have bought or sold using the scheme on your VAT return.
Box 1 on your VAT return will need to include the output tax due on all of the eligible goods sold in the period covered by the return.
Box 6 on your VAT return will need to include the full selling price of all eligible goods sold in the period, less any VAT due on the margin.
Box 7 on your VAT return should include the full purchase price of eligible goods bought in the period covered by the return.
Box 8 and Box 9 of your VAT return do not need to include details of margin scheme purchases or sales.
Keeping records for the VAT margin scheme
A business doesn’t have to apply to HMRC in order to use a VAT margin scheme. However, the business will have to maintain their accounting records in a particular way for the margin scheme. This includes keeping a stockbook, along with invoices for sales and purchases.
The business then needs to report any goods sold using a margin scheme accurately on its VAT return.
You will need to keep VAT records of your use of the margin scheme for 6 years. If you have had items in stock for more than 6 years that you plan to sell under the scheme, you will need to keep records until you sell the item.
Using accounts software for the VAT margin scheme
Standard accounts software does not support the VAT margin scheme, but we have experience in adapting cloud accounting systems to support the VAT margin scheme for our clients. This means you don't have to keep a hard copy stockbook or spreadsheet records, unless you want to!
Invoices and the VAT margin scheme
When using the VAT margin scheme you will need to retain an invoice from the seller of any items along with the copy of the invoice when you sell the item. It is important to note that the invoice requirements are not the same as general VAT invoice requirements.
Purchase Invoices should contain the following:
seller’s name and address
your name and address, or that of your business
the item’s unique stockbook number (if you bought the item from another VAT-registered business)
invoice number (unless you made out the purchase invoice yourself)
total price - you must not add any other costs to this price
if you bought the item from another VAT-registered business, any of the following: ‘margin scheme - second hand goods’, ‘margin scheme - works of art’ or ‘margin scheme - collectors’ items and antiques’
Sales invoices should include:
your name, address and VAT registration number
the buyer’s name and address, or that of their business
the item’s unique stock book number
total price - you must not show VAT separately
any of the following: ‘margin scheme - second hand goods’, ‘margin scheme - works of art’ or ‘margin scheme - collectors’ items and antiques’