In this section:
- VAT accounting schemes: the basics
- Annual accounting VAT scheme
- Cash accounting VAT scheme
- Flat rate VAT scheme
- VAT retail schemes
- VAT margin schemes for second-hand goods, art, antiques
VAT margin schemes for second-hand goods, art, antiques
Normally you charge VAT on your sales, and reclaim VAT on your purchases. However, if you buy or sell second-hand goods, works of art, antiques or collectibles you may be able to use a VAT margin scheme. This enables you to account for VAT only on the difference between the price you paid for an item and the price at which you sell it - your margin. There is no VAT to reclaim on the item you buy, and you won't pay any VAT if you don't make a profit on a deal. You can still use normal VAT accounting for other sales and purchases such as overheads.
On this page:
- Margin schemes: how they work
- When you can and cannot use the margin schemes
- Benefits of using a margin scheme
- How to use a margin scheme
- Record-keeping when using a margin scheme
- How to join a margin scheme
- Special margin schemes by sector
- Using margin schemes with other schemes
- Find out more
Margin schemes: how they work
Using standard VAT accounting, you charge VAT on your selling price and reclaim VAT on the price of your purchases.
Using a margin scheme, you only account for VAT on the difference between the price you paid for an item and the price at which you sell it - 'the margin'. There are specific rules for defining what the margin is, and there are limits on the types of goods which are eligible for the scheme.
If you use a margin scheme, you can still use standard VAT accounting for other items that you sell. You can also reclaim VAT on business expenses such as overheads.
More about margin schemes in VAT Notice 718
When you can and cannot use the margin schemes
When you can use a margin scheme
You can use a margin scheme if you trade in eligible goods that you've bought from businesses or individuals who are not registered for VAT, or from businesses selling under the scheme.
'Eligible goods' include the following:
- Second-hand goods. Goods that can still be used, or which could be used after repair. They include most goods that are commonly called 'second hand' and include motor cars - but not vehicles sold for scrap or parts.
- Works of art. Pictures, paintings, collages, drawings and other works created and generally signed by the artist. Most items that would normally be described as 'works of art' would be eligible, although there are exclusions such as hand painted manufactured items and similar craft products.
- Antiques and collectors' items. Antiques are goods that are over 100 years old. Collectors' items are stamps, coins and currency and other pieces of scientific, historical or archaeological interest. Not all goods that can be collected are eligible under the scheme
More about eligible and ineligible goods in VAT Notice 718
When you cannot use a margin scheme
In addition to the restrictions above, you cannot use a margin scheme:
- for precious metals, precious stones or gold bought and sold as an investment
- if you buy goods and the invoice shows VAT charged separately
- if you sell something someone has given to you as a gift
More about margin schemes in VAT Notice 718
Benefits of using a margin scheme
Compared to standard VAT accounting:
- even though you have no VAT to recover on your purchase, you only calculate VAT on the value - your margin - that you add to the goods when you sell them
- if you sell something for less than what it cost you to buy, you won’t have to account for VAT on the sale
- you can use a margin scheme on some goods and standard VAT accounting on others
- you can still reclaim VAT on your purchases for other business expenses, such as overheads, repairs, parts or accessories
More about margin schemes in VAT Notice 718
How to use a margin scheme
The VAT standard rate is 17.5 per cent until 30 November 2008. From 1 December 2008 to 31 December 2009 the standard rate is 15 per cent. On 1 January 2010 it will change back to 17.5 per cent. This means you may need to calculate VAT at different rates for items that come within the margin scheme depending on how your VAT accounting period falls.
When you use a margin scheme, the difference between the purchase and sale price - the gross margin - is treated as VAT-inclusive. You can find information on how to calculate the VAT on VAT-inclusive amounts in 'How to calculate VAT from VAT-inclusive amounts'.
How to calculate VAT from VAT-inclusive amounts
Purchase price
The purchase price is what you paid for an item. It does not include the costs of making it ready for selling. For instance, if you buy and sell second-hand cars, you cannot include the cost of repairs or refurbishment. However you may be able to reclaim any VAT that you paid on these using standard VAT accounting.
More about how to calculate purchase prices in VAT Notice 718
Selling price
The selling price includes all your proceeds from selling an item, whether from a buyer or via a third party, including incidental expenses directly linked to the sale. If you take something in part exchange, you must include the value of that item in the selling price. The selling price does not include disbursements or optional extras, for example the services of a carrier to transport an antique piece of furniture to the buyer, that are charged to the buyer. You should account for these items using standard VAT accounting if appropriate.
More about how to calculate selling prices in VAT Notice 718
More about margin schemes in VAT Notice 718
Record-keeping when using a margin scheme
If you use a margin scheme, you must keep all required VAT records and accounts, plus:
- A stock book or some similar record showing details of each item that you buy and sell under the scheme, including how you worked out each margin.
- Purchase invoices showing details of the items you bought under the scheme. If you buy from a private individual, or a business that isn’t registered for VAT, you must make out the purchase invoice yourself, and your purchase invoice must include an indication that a margin scheme has been applied, which can be a reference to either the EU or the UK margin scheme legislation, or something along the lines of: 'This invoice has been for a second-hand margin scheme supply'. VAT must not be shown separately.
- Copies of your sales invoices for items sold under the scheme, showing full details and including an indication that a margin scheme has been applied, which can be a reference to either the EU or the UK margin scheme legislation, or something along the lines of: 'This invoice has been for a second-hand margin scheme supply'. You must not show VAT separately.
More about margin schemes in VAT Notice 718
How to join a margin scheme
You don't need to fill in an application form to join a scheme. and you can start using it at any time.
Special margin schemes
There are special margin schemes for auctioneers and for global accounting.
Auctioneers
If you are an auctioneer acting in your own name and selling eligible goods, you can either use the agents' rules or the auctioneers' scheme - a variation on the margin scheme.
More about auctioneers and margin schemes in VAT Notice 718
Global accounting
This is a simplified version of the margin scheme. It is useful if you deal in high volume, low price items that make it difficult for you to keep detailed records.
More about global accounting and margin schemes in VAT Notice 718
Using a margin scheme in particular sectors
There are special requirements if you want to use a margin scheme for some types of items, or if you buy and sell them in a particular way.
Agents
If you are an agent acting in your own name, or selling eligible goods on behalf of others you can use a margin scheme.
More about using agents and margin schemes in VAT Notice 718
Horses and ponies
You can only use the margin scheme for second-hand horses and ponies – not ones that you have bred – and only if you bought them on an invoice that does not show VAT separately.
More about horses and ponies and margin schemes in VAT Notice 718
Motor vehicles
You can only use the margin scheme for a vehicle that has at some point actually been driven on the road for business or pleasure – we don’t consider a vehicle to be second-hand just because it’s been registered, has delivery mileage and has been bought and re-sold.
More about motor vehicles and margin schemes in VAT Notice 718
Pawnbrokers
If you are a pawnbroker and sell unredeemed pawns, you can use the margin scheme as long as the original loan was not more than £75, had a six month redemption period, and you have taken title to the goods.
More about pawnbrokers and margin schemes in VAT Notice 718
Shares and joint purchases
There are specific ways of dealing with shares and other items that you own, buy and sell jointly with others.
More about shares and joint purchases and margin schemes in VAT Notice 718
Imports and exports
Rules for using margin schemes for items bought or sold outside the UK vary according to whether the country is inside or outside the EU, and how items purchased from EU countries were supplied.
More about buying and selling within the EU and margin schemes in VAT Notice 718
More about imports and exports and margin schemes in VAT Notice 718
Using margin schemes with other schemes
You may be able to use a margin scheme with the annual accounting or cash accounting schemes. You cannot use margin schemes with the flat rate scheme, and they are not generally suitable for use with a retail scheme.
Annual accounting scheme
Using annual VAT accounting, you make nine monthly or three quarterly interim payments throughout the year. You only need to complete one VAT return at the end of the year when you either make a balancing payment or receive a balancing refund
Get information on the annual accounting scheme
Cash accounting
Unlike standard VAT accounting where VAT is due when you issue an invoice, using cash accounting you don't have to pay VAT until your customers pay you.
Get information on the cash accounting scheme
Flat rate scheme
Using the flat rate scheme you simply pay a fixed percentage of your turnover as VAT.
Get information on the flat rate scheme
Retail schemes
If you are a retailer, there are several schemes where you can simplify your calculation of VAT by not having to account for VAT on each individual sale.
Get information on the retail schemes
Tour operator's margin scheme
The tour operator's margin scheme makes VAT accounting easier for tour operator's who buy and sell travel, accommodation and certain other services internationally.
More about VAT and tour operators in VAT Notice 709/5
Find out more
The HMRC website has detailed information about the different margin schemes and how to use them.
More about margin schemes in VAT Notice 718
Use the VAT schemes wizard to find out what VAT scheme is right for your business
