VAT margin scheme

VAT margin scheme introduced by HM Revenue and Customs for second hands goods businesses.

You can use the margin scheme if you are selling:

  • Second hands goods
  • Arts
  • Antiques

There are special rules for selling:

  • Used cars
  • Horses and ponies
  • Houseboats and caravans

You cannot use the margin scheme for :

  • precious stones
  • precious metals
  • investment gold
  • item you bought for which you were charged VAT

The VAT margin scheme allows you to calculate VAT on the difference (or margin) between your purchase cost and your selling price. You must maintain detailed records of your transactions.

Calculate the VAT under the scheme

Say, you bought a second-hand painting for £20,000 and you sold it for £35,000. Using the margin scheme, you pay VAT on the £15,000 profit at the current VAT rate of 20%.

You calculate the VAT payable to HMRC using the VAT fraction of one-sixth (1/6) on the profit. In percentage, it is 16.67%. In this case, the VAT payable to HMRC is £2,500.

On the other hand, if no profit is made because you sold the second-hand item at a loss then no VAT is payable.

Thereafter you use these figures to complete your VAT return.

Global Accounting Scheme is the simplified version of the Margin Scheme

You may use the Global accounting scheme if you sell high volume and low priced second-hand goods. The Global Accounting Scheme would benefit your business especially since maintaining a detailed accounting record of every transaction is impossible. In short, the Global Accounting Scheme is the simplified version of the VAT Margin Scheme.

The difference between the VAT Margin Scheme and the Global Accounting Scheme is that the standard Margin Scheme you account for VAT on the profit (margin) you made on the sale of a second-hand item.

Whereas for the Global Accounting Scheme you account for VAT on the margin you made between your TOTAL eligible purchases and TOTAL eligible sales in an accounting period.

Contact HMRC directly if you have any questions about the second-hand goods VAT scheme.

Other VAT schemes

There are other VAT schemes available for businesses in the United Kingdom. The most popular VAT schemes for small businesses are cash accounting and annual accounting schemes.

VAT cash accounting is beneficial for small businesses that grant credit terms to their customers because your business does not have to pay HMRC before you actually received the cash from your customers.

Whereas for VAT annual accounting your business only has to submit a VAT return once a year.

Companies House filings

Besides, maintaining good VAT accounting records and filing, if your VAT registered business is a limited company, you must deliver company accounts and confirmation statement to Companies House.

If you require any help with your VAT returns, company accounts and confirmation statement filing, feel free to contact our accountants, they will be more than happy to assist you to comply with your filing requirements.

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