How does the VAT Margin Scheme work for second-hand goods in the UK?

Full answer

The VAT Margin Scheme (formally the Second-Hand Goods Scheme, Auctioneers Scheme, and similar) is authorised under UK VAT legislation (VATA 1994 and VAT Regulations 1995) and allows dealers to account for VAT on profit margins rather than full values. **Who can use the Margin Scheme:** - VAT-registered dealers in second-hand goods, works of art, antiques, and collectors' items - The goods must have been purchased from a person who could not charge VAT (a private individual, an unregistered trader, or a VAT-registered business that originally bought the item for non-business use without recovering input VAT) **How it works:** - Buy a second-hand car for £5,000 (from a private seller -- no VAT invoice) - Sell for £8,000 - Margin = £3,000 - VAT on margin = £3,000 x 1/6 (VAT fraction for standard rate) = £500 - You pay £500 VAT to HMRC; the invoice to the buyer shows total price £8,000 with NO separate VAT amount **Rules:** - The sale invoice must NOT show VAT separately -- it must just show the total price - The buyer therefore CANNOT reclaim the VAT (it is hidden in the margin) - You must keep a stock book showing purchase price and sale price for each eligible item - The scheme is optional -- dealers can instead use standard VAT accounting (which allows buyers to recover input VAT) **Global accounting (simplified margin scheme):** Some dealers (e.g. of low-value job lots) can use global accounting -- adding up all eligible purchases and all eligible sales for the period and calculating VAT on the net margin, rather than item by item. **Exclusions from the Margin Scheme:** - New goods - Precious metals and investment gold (separate schemes apply) - Goods you bought on a standard VAT invoice (where you reclaimed the input VAT) - Goods imported into the UK (use import VAT rules instead) HMRC guidance: VAT Notice 718.

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