Call for Assistance: 02033 259 341
Spondoo Accounting
Call for Assistance: 02033 259 341
Spondoo Accounting

VAT Margin Schemes

April 14, 2022

Some VAT registered businesses like second-hand booksellers tend to buy their goods from individuals who are not usually VAT registered themselves, like consumers and private individuals.  

When this occurs VAT can become a particularly large burden on the profitability of these types of businesses, as traditional rules require these traders to account for VAT on the entire sale value, despite having no ability to reclaim any input VAT. 

As a result, HMRC designed the Marginal Rate Scheme for these types of traders. 

What is VAT Margin Scheme? 

The VAT Margin Schemes allows traders to calculate VAT on the difference between the purchase price they paid for the goods, and the eventual sales price when selling the good. To put it another way, the scheme taxes the difference between what you pay for an item and what you sell it for, instead of the full selling price. 

Eligibility to join 

You can use a Margin Scheme when you sell: 

  • Second-hand goods – used goods that can still be used – or used after repair. 
  • Works of art – There are some exceptions, for example, technical drawings, scenery for theatres and hand-decorated manufactured items. 
  • Antiques – these are goods that are over 100 years old. 
  • Collectors’ items – include stamps, coins, currency and other pieces of scientific, historical, or archaeological interest. 

However, you cannot use a margin scheme for: 

  • Precious stones 
  • Precious metals 
  • Investment gold 
  • Any item you bought for which you were charged VAT. 

How to join 

You can start using a Margin Scheme at any time by keeping the correct records and then reporting them on your VAT return. You do not have to register or inform HMRC when you do.  

However, it is crucial to speak to your accountant for guidance before joining because you may have to pay VAT on the full selling price of each item – if you do not meet all the scheme’s requirements. 

Example of a VAT Margin Scheme 

A VAT-registered business (Stampy Trader LTD) buys a collection of stamps with historical interest from an individual for £1,500. Since the individual is not VAT-registered, Stampy Trader LTD pays no VAT when it purchases the stamps. 

Stampy Trader LTD then resells the stamps for £2,000, making a profit of £500. Using the VAT Margin Scheme for collectors’ items Stampy Trader LTD applies VAT assuming the £500 profit is inclusive of VAT by dividing £500 by 6 to get a VAT payable figure of £83.35. 

As a result, Stampy Trader LTD owes £83.35 in VAT, which it reports on its next VAT return. 

VAT Return 

You must show any goods you bought or sold using a margin scheme on your VAT return. To fill the VAT return: 

Box on the VAT return form 

  What to fill in 

Box 1 

 

Output tax due on all eligible goods sold in the period covered by the return. 
Box 6 

 

The selling price of all eligible goods sold in the period – less VAT due on the margin. 
Box 7 

 

The purchase price of eligible goods – bought in the VAT period. 

 

You do not have to include margin scheme purchases or sales in boxes 8 and 9 of your VAT return. 

Margin Schemes and Standard VAT 

If some of the items, you buy, and sell are not eligible for a margin schemeyou must pay and charge VAT for them in the usual way. 

You cannot include any of the following in your calculations when using a Margin Scheme: 

  • Repairs 
  • Business overheads 
  • Parts or accessories 

Keeping records 

You must keep the usual VAT records when you use a margin scheme – plus the following two: 

1. A stockbook

The stockbook should track each item sold under the Margin Scheme individually. You must record information for each item you buy and sell that you intend to put under the Margin scheme. The recorded information includes: 

 

Sales 

Purchases 

 

 

Stock number in numerical sequence. 
Date of sale 

 

Date of purchase 
Sales invoice number 

 

Purchase invoice number (unless you made out the purchase invoice yourself) 
Selling price, or method of disposal 

 

Purchase price 
Name of buyer 

 

Name of seller 
 Description of the item 
The margin on sale (sales price less purchase price)

 

 
The margin on sale (sales price less purchase price) 

 

 

2. Copies of purchase and sales invoices

To use the margin scheme – you must have invoices for each item that meets the VAT margin scheme requirements. You must have: 

  • An invoice from the seller when you bought the item. 
  • A copy of the invoice you gave to the buyer when selling. 

When buying or selling something under a margin scheme, you must give or receive an invoice that includes: 

 

Buying 

Selling 

Date 

 

Date 
Seller’s name and address. 

 

Your name, address, and VAT registration number. 
Your name and address, or that of your business. 

 

The buyer’s name and address, or that of their business 
Item’s unique stockbook number (if you bought the item from another VAT-registered company). 

 

Item’s unique stock book number. 
Invoice number (unless you made out the purchase invoice yourself). 

 

Invoice number 
Item description 

 

Item description 
Total price – you must not add any other costs to this price 

 

Total price – you must not show VAT separately 
Any of the following, if you bought the item from another VAT-registered business: ‘margin scheme – second-hand goods’, ‘margin scheme – works of art,’ or ‘margin scheme – collectors’ items and antiques. 

 

Any of the following: ‘margin scheme – second-hand goods’, ‘margin scheme – works of art’ or ‘margin scheme – collectors’ items and antiques. 

 

You must keep records until you sell the item for any stock you bought more than six years ago that you plan to sell under the margin scheme. 

Exceptions 

There are different rules if you’re selling: 

HMRC also has different rules for auctioneers, agents and those that buy and sell goods in Northern Ireland and the EU. 

Need help with the VAT margin scheme? 

If you are unsure if a particular item is eligible for the Margin Scheme or just need more information on the scheme or the opportunities available in it, please call 02033 259 341 for support. 

more tips

Can You Claim Food as a Business Expense?

The golden rule when claiming business expenses is that the cost must be “wholly and exclusively” for business purposes. So, where do you stand when it comes to food and drink? After all, everyone needs these things to survive. When does it become an allowable expense? Read on to find out when your business can claim food and drink as an expense.
READ MORE

Self-Employed National Insurance Class 2 and Class 4 Rates

If you are sixteen and over, self-employed (sole trader or in a partnership) and making a profit befitting the ‘small profits threshold’, you are liable to pay national insurance.
READ MORE

Key UK Personal Tax Year Dates & Deadlines 2021/2022

Are deadlines creeping up on you? Spondoo is here to ensure you keep on top of things and take control again. These are the important dates you should take note of.
READ MORE

How To Set Up A Limited Company 

A Step-by-Step Guide  This is an easy-to-understand, step-by-step guide, to opening a successful limited company. But before we dive in, let’s check the legality surrounding it. 
READ MORE

Accountants in Haslemere, Surrey

We are qualified accountants providing personal and professional services for start-ups, established companies and individuals in and around the Halsemere area in Surrey. With the rise in technology, we have embraced the digitisation of accounting using efficient digital accounting tools to offer reliable services to our customers. Our goal remains to get our clients the best accounting and taxation services at the most affordable rates.
READ MORE

Onsite Canteen and Lunch Vouchers - Are They Taxable?

The provision of food and drink to an employee by their employer is a lovely thing to do. Eventually, it promotes teamwork, loyalty, a sense of belonging and even improves productivity. Taking it at face value makes it look like a simple act of kindness. However, unless it is done correctly, it can cause tax and national insurance compliance issues for the employer.
READ MORE
1 2 3 21
LEARN MORE
Information provided on the site is merely guidance that may change in line with UK law and regulations. Users must not consider this to be financial advice or their sole resource when making any financial decision. Spondoo is a trading name for Accounting SQL Limited, authorised & license accounting firm under the Institute of Financial Accountants.

4.9

Arnie Ayton accountant ratings on VouchedFor
Arnie Ayton accountant ratings on VouchedFor
© Copyright 2020 - Spondoo - All Rights Reserved
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram