Do you need help with the VAT margin scheme?
What is the VAT margin scheme?
A business can use the VAT margin scheme in order to pay tax on 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 between the buying and sale price rather than the standard VAT rates of 20%, 5% and zero-rated items. Businesses in the UK who deal with eligible purchases and sales can find this very useful to ensure they do not miss out.
When can you use the VAT margin scheme?
You can only use the margin scheme when you are selling certain things:
- Second-hand goods
- Works of art
- Collectors’ items
The criteria is outlined on here on the government website.
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
- Precious metals
- Investment gold
- Precious stones
There are also different rules for certain goods such as
- Second-hand vehicles
- Horses and ponies
- Houseboats and caravans
- Items that have been pawned
VAT can be complicated and it is always recommended to seek professional advice if you are unsure about how to apply the VAT margin scheme or calculate the correct VAT rate.
Sherwin Currid Accountancy understand all aspects of accounting including VAT and the application of the VAT margin scheme. We can help you follow the VAT rules and will assist in determining if you meet the scheme’s requirements. Please get in touch if you would like to find out more about how we can help support you.
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.
A business doesn’t have to apply to HMRC in order to use a VAT margin scheme. The business does need to keep accounting records that includes a stockbook along with invoices for sales and purchases. See below.
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 then you will need to keep records until you sell the item.
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)
- Item description
- 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
- Invoice number
- Item description
- 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’