UK: The HMRC’s policy guidance on using the VAT margin scheme
The HMRC implemented a more equitable method of declaring VAT on sales for businesses that do not pay VAT on their purchases. If your business supplies second-hand goods, art works, antiquities, and collectors’ items, you have an option to adopt a simplified margin scheme to account for VAT on purchases and sales. Instead of paying VAT on the entire selling price, you pay VAT only on the one-sixth of the difference between what you paid for an item and what you sold it for under the margin scheme.
Definition
A VAT margin scheme taxes the difference between what a company buys for goods and what it sells them for. A VAT rate of 16.67% (one-sixth) is charged on the difference. A company can employ a VAT margin strategy when selling second-hand goods, art or antiques works and collectors’ items.
VAT margin schemes cannot be used for:
- Goods purchased that is subject to VAT
- Sale of valuable stones or metals, including investing on gold.
Example
A VAT-registered online seller purchases an antique vase for 1000 GBP from an individual. Due to the fact that the customer is not VAT registered, the business doesn’t pay VAT on the bookshelf. The business later sells the bookshelf for 1400 GBP . Using the VAT margin program for antiques, the business pays 16.67% VAT to the HMRC on the 400 GBP difference. This results in a VAT payable amount of 66.68 GBP which the online seller must report on its next VAT return.
Businesses are not required to apply for the scheme but should keep VAT records (e.g., stock books, sales, and purchase invoices). The company should then record any VAT margin scheme sales on its VAT return. Businesses that decide to use the margin scheme should also meet a number of requirements. If it does not meet all of the scheme’s requirements, it will be required to pay 20% VAT on the full selling price of each item.
There are additional requirements for:
- Used cars
- Selling of horses and ponies
- Selling of second-hand houseboats and caravans
- Goods that have been pawned
- Buying and selling goods between EU including Northern Ireland
- Importing or exporting goods to and from the UK
These professionals are also subject to additional regulations:
Businesses that sell large quantities of low-cost qualified items (under 500 GBP per item) may be eligible for the Global Accounting Scheme, a simplified version of a VAT margin scheme. This method will allow taxpayers to account for VAT on the difference between their total eligible purchases and total eligible sales, rather than on the margin on individual items sold.
Source: HMRC