VAT margin schemes for second-hand goods, art, antiques etc

Normally you charge VAT on your sales, and reclaim VAT on your purchases. However, if you sell second-hand goods, works of art, antiques or collectibles, there may have been no VAT for you to reclaim when you bought them. 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. You won't pay any VAT if you don't make a profit on a deal. You can still use standard VAT accounting for other sales and purchases such as overheads.

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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. This means that you only pay VAT on the value you added to the item you sold, that is, the difference between how much you paid for the item and how much you sold it for.

You have to charge VAT when you sell taxable goods. If there was no VAT on your purchase invoice, you will have to pay HMRC the VAT you charged on your selling price, but you won't have any VAT to claim back on your purchase price. Margin schemes can save you money if you sell certain types of goods on which there was no VAT for you to reclaim because they duplicate the effect of standard VAT accounting. In other words, they allow you to pay VAT on the value you added to the goods, rather than on their full selling price.

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

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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 under eligible circumstances, for example 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 technical drawings, scenery for theatres and hand-decorated manufactured items.
  • 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 and circumstances in VAT Notice 718

When you cannot use a margin scheme

In addition to the restrictions above, you cannot use a margin scheme:

  • for goods (including coins) consisting of 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

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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

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How to use a margin scheme

When you use a margin scheme, the difference between the purchase and sale price - the gross margin - is treated as VAT-inclusive. To work out the VAT due on an item, you find this margin and multiply it by the VAT fraction.

How to calculate VAT from VAT-inclusive amounts

For example, if you buy a standard-rated item for £1500 and sell it for £2000, the gross margin is £500. You then multiply £500 by the VAT fraction to calculate. This is your VAT due to HMRC.

There are particular rules on how to determine your purchase price and your selling price for the purpose of calculating VAT using a margin scheme. In general, the rules for both sides of the transaction mirror each other.

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, you cannot include the cost of any repairs or refurbishment. However, you can 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 that are charged to the buyer, for example the services of a carrier to transport an antique piece of furniture 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

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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. If you buy from another VAT-registered business, the purchase invoice they give you must include an indication that a margin scheme has been applied. This indication can be a reference to either the EU or the UK margin scheme legislation, or something along the lines of: 'This invoice is for a second-hand margin scheme supply'.
  • 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. This indication 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

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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.

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Special margin schemes

In addition to the standard VAT Margin Scheme, there is the VAT Auctioneers Scheme and VAT 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 the auctioneers scheme 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 the global accounting scheme 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

Whether 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

If you are selling horses and ponies under the margin scheme, you may want to use the special three-part forms supplied by the British Equestrian Trade Association to simplify your record-keeping.

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 - HM Revenue & Customs (HMRC) doesn't consider a vehicle to be second-hand just because it's been registered, has delivery mileage and has been bought and re-sold.

Find out more about VAT on second-hand vehicles in our guides to VAT for motor traders

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.

Find out about VAT and International Trade

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

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Using margin schemes with other schemes

You may be able to use a margin scheme with the Annual Accounting Scheme or the Cash Accounting Scheme. 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 Scheme

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 about 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 about 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 operators that buy and sell travel, accommodation and certain other services internationally.

More about VAT and tour operators in VAT Notice 709/5

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