The VAT Margin Scheme and global accounting

HMRC Reference:Notice 718 (April 2011) View Change History
 

Contents

Foreword

1. Introduction

1.1 What is this notice about?

1.2 What’s changed

1.3 Who should read this notice?

1.4 Force of law

2. Basic principles

2.1 What are margin schemes?

2.2 Why would I want to use a margin scheme?

2.3 What are the conditions for using the schemes?

2.4 Why are the conditions so strict?

2.5 What if I can’t meet all the conditions?

2.6 What if I have claimed VAT?

2.7 Which categories of goods can I sell under the margin schemes?

2.8 Are there any categories of goods I can’t sell under the schemes?

2.9 Can I sell all eligible goods under the schemes?

2.10 What if I make sales under the normal VAT rules as well?

2.11 How do the margin schemes affect VAT on my overheads?

3. Making your margin scheme calculations

3.1 How do I calculate my selling price?

3.2 How do I calculate my purchase price?

3.3 How do I calculate the margin?

4 Buying and selling goods under the Margin Scheme

4.1 What must I do when I buy goods?

4.2 What must I do when I sell goods?

5. Records and accounts

5.1 What records must I keep?

5.2 What are the rules for stock books?

5.3 What are the rules for Margin Scheme invoices?

5.4 Filling in your VAT return

5.5 How long must I keep records?

5.6 Do I need to keep records for goods on sale or return?

5.7 How do I treat invoices in foreign currencies?

6. Example of a Margin Scheme stock book

6.1 How do I complete my stock book?

7. The margin schemes and buying and selling within the EC

7.1 Can I use the schemes for goods I buy from within the EC?

7.2 How should I treat invoices from EC businesses?

7.3 How do I treat sales to other Member States?

7.4 How do I treat the transfer of my own goods?

7.5 Can I use the margin schemes for the purchase and sale of new means of transport?

7.6 Do I have to complete EC sales lists and Intrastat?

8. The margin schemes and imports and exports

8.1 Can I use the margin schemes when I sell goods I have imported?

8.2 What should I do if I export goods?

9. Transfers of going concerns and assignments of rights

9.1 What if I take over a business as a going concern (TOGC)?

9. 2 What about the records?

9.3 What will my margin scheme purchase price be?

9.4 What are the rules for banks and finance houses?

10 The margin schemes in particular circumstances: works of art, antiques and collectors’ items on which VAT has been charged

10.1 What is this section about?

10.2 What are the conditions for using this option?

10.3 What is my purchase price when I use this option?

11. The margin schemes and buying and selling at auction

11.1 Who should read this section?

11.2 What should I do if I buy goods at auction?

11.3 What is the purchase price of eligible goods I buy at auction?

11.4 What is the selling price of eligible goods I sell at auction?

12. The margin schemes and joint purchases and shares

12.1 What is this section about?

12.2 How do I treat shares?

12.3 How do I treat joint purchases?

12.4 What if I then sell the goods?

12.5 What if one of the other joint owners sells the goods?

12.6 What if I sell the goods but I didn’t buy them?

13. Answers to common questions

13.1 Can I get relief from bad debts?

13.2 What if I sell insurance with a margin scheme supply?

13.3 How do I deal with gifts?

13.4 How do I deal with private sales?

13.5 How do I deal with hire-purchase sales?

13.6 How do I treat part-exchange goods?

13.7 How do I deal with occasional sales of eligible goods?

13.8 How should finance companies treat the sale of second-hand repossessed goods?

13.9 What if I buy goods from an insurance company or finance house?

13.10 How do I treat Artist’s Resale Right charges?

14. Global Accounting

14.1 What is Global Accounting?

14.2 How does it differ from the Margin Scheme?

14.3 Would I benefit from using Global Accounting?

14.4 Which goods can I use Global Accounting for?

14.5 Which goods can I not use Global Accounting for?

14.6 What do I need to consider when I start using the scheme?

14.7 How do I value my stock on hand?

14.8 How do I work out the VAT due under Global Accounting?

14.9 Can I use Global Accounting for the sale of scrap?

14.10 Can I use Global Accounting for bulk purchases and collections?

14.11 Global Accounting in other situations

15. Global Accounting – records and accounts

15.1 What records do I need to keep?

15.2 What must I do when buying goods under Global Accounting?

15.3 What details must be included on purchase invoices?

15.4 What must I do when selling goods under Global Accounting?

15.5 What details must I include on sales invoices?

15.6 What details should I include in my purchase and sales summaries?

15.7 What if I stop using the scheme or transfer goods as a going concern?

15.8 What must I do if I sell items outside the scheme?

15.9 How do I treat stolen or destroyed goods?

15.10 How do I treat repairs and restoration costs?

15.11 How do I treat Global Accounting invoices in foreign currencies?

16. The Margin Scheme in particular trade sectors: dealers in second-hand horses and ponies

16.1 What do I need to know?

16.2 What is the three-part form?

16.3 Buying a second-hand horse or pony, using the three-part form

16.4 Selling a horse or pony, using the three-part form

16.5 Buying a horse or pony at auction, using the three-part form

16.6 Selling a horse or pony at auction, using the three-part form

16.7 What records do I have to keep if I don’t use the three-part form?

17.1 The Margin Scheme in particular trade sectors: agents

17.1 What is an agent?

17.2 I am the owner of the goods: how do I calculate my margin?

17.3 I am an agent: can I use a margin scheme?

17.4 I am an agent and I invoice my charges separately to the seller

17.5 I am an agent and I include my charges to the seller in the sale of the goods

17.6 What if I sell zero-rated goods?

17.7 What records do I need to keep?

18. The Margin Scheme in particular trade sectors: pawnbrokers

18.1 Can I use a margin scheme when I sell unredeemed pawns?

18.2 What is my purchase price for the margin scheme?

18.3 What should I use as my purchase invoice?

18.4 Under what circumstances can I not use a margin scheme?

19. The Margin Scheme in particular trade sectors: dealers in second-hand caravans and houseboats

19.1 Can I use the Margin Scheme?

20. Definitions

20.1 Definitions of eligible goods

20.2 Definitions of ineligible goods

Your rights and obligations

Do you have any comments or suggestions?

Putting things right

How we use your information

 

Foreword

This notice cancels and replaces Notice 718 (January 2010). Details of any changes to the previous version can be found in paragraph 1.2 of this notice.

If you are not already registered for VAT you should ask the VAT Helpline for Notice 700/1 Should I be registered for VAT?

1. Introduction

1.1 What is this notice about?

This notice explains when you may use the Margin Scheme for second-hand goods, works of art, antiques and collectors’ items, or the Global Accounting Scheme, to account for VAT on your sales of goods.

It explains

  • which goods you can sell under the schemes
  • how the schemes work
  • how you must calculate the margin, and
  • what records you must keep.

This notice assumes that you have a working knowledge of basic VAT principles, as outlined in Notice 700 The VAT Guide.

If, after reading this notice, you need any further help or advice, contact our VAT Helpline.

1.2 What’s changed

We have rewritten this notice to make it easier for you to find the information you need. General information in sections 2 to 13 applies to both schemes. In the later sections, we describe the Global Accounting Scheme, the conditions for its use, and the impact the margin schemes have on particular business sectors.

We have removed:

  • the information which is relevant to people who buy and sell motor vehicles, and
  • the information about the Auctioneers’ Scheme

and have put it in two separate notices.

The rules about margin scheme declarations on invoices have changed: please see the paragraphs 5.3(Margin Scheme) and 15.5 (Global Accounting) for details.

We have updated the Notice to reflect the VAT rate of 20%.

This notice and others mentioned are available on our website.

1.3 Who should read this notice?

You should read this notice if you make supplies of:

  • second-hand goods
  • works of art
  • antiques, or
  • collectors’ items

1.4 Force of law

In UK law, Section 50A of the VAT Act 1994 allows the Treasury to make Orders to introduce second-hand schemes.

The VAT (Special Provisions) Order 1995 (as amended) covers all goods other than cars.

Parts of this notice have the force of law under the order. All of sections 4 and 5 have legal force and supplement the law. Certain paragraphs within other parts of the notice also have the force of law. Those paragraphs are indicated by a statement and by having been placed in a box.

2. Basic principles

2.1 What are margin schemes?

A margin scheme is an optional method of accounting which allows you to calculate VAT on the value you add to the goods you sell, rather than on the full selling price.

There are three margin schemes for goods:

  • The Margin Scheme for second-hand goods, works of art, antiques and collectors’ items (referred to throughout this notice as the Margin Scheme)
  • Global Accounting
  • The VAT Auctioneers’ Scheme (see Notice 718/2 The VAT Auctioneers’ Scheme)

2.2 Why would I want to use a margin scheme?

Using a margin scheme will reduce the VAT you have to pay if you sell:

  • second-hand goods
  • works of art
  • antiques, or
  • collectors’ items

on which you could not claim back any VAT when you purchased them.

Without a margin scheme, you would have to account for VAT on the full selling price of each item.

Using a margin scheme allows you to account for VAT on the difference between the price you paid for an item and the price you sold it for.

If you sell an item for less than you paid for it, you won’t have any VAT to account for on the sale.

2.3 What are the conditions for using the schemes?

You don’t have to use the margin schemes: they’re optional.

If you do decide to use one, there are a number of conditions you will have to meet. If you can’t meet all the conditions, you can’t use the scheme.

The detailed conditions are explained throughout this notice. The main ones are:

  • The goods must be eligible (see paragraph 2.7).
  • You must have acquired the goods in eligible circumstances. In most cases, this means that you obtained the goods for resale in circumstances where you could not claim any VAT back (see paragraph 2.9).
  • You must calculate the margin in accordance with the rules of the scheme. There are special rules about how to calculate your buying price, your selling price and your margin under the schemes. The margin you calculate under the scheme may not be the same as your profit margin (see paragraph 3.3).
  • You must meet the record keeping rules of the scheme. There are special rules about invoicing and stock records (see sections 5 and 6).

2.4 Why are the conditions so strict?

The conditions about eligibility of goods are strict to ensure that:

  • only those goods which the law permits, and
  • on which there was no VAT to recover

are sold under the margin schemes. They prevent businesses from declaring less VAT than is due on goods which are not covered by the schemes.

The conditions about record keeping and invoicing are strict because, to take advantage of the financial benefit of using a margin scheme, you must be able to provide us with clear evidence of the margins you have achieved.

2.5 What if I can’t meet all the conditions?

If you sell an eligible item, but cannot meet all the record keeping, invoicing and accounting requirements, you cannot use a margin scheme.

Even though that item would otherwise have been eligible for onward sale under a margin scheme, you must deal with the sale in the normal way, accounting for VAT on the full selling price.

2.6 What if I have claimed VAT?

If you have

  • reclaimed, or
  • were entitled to reclaim

VAT on an item you have purchased, you cannot use a margin scheme when you sell it. You must account for VAT on the full selling price under the normal rules, with the exception detailed below.

The only exception to this rule is where you opt to use one of the margin schemes for imported works of art, antiques and collectors’ items and for works of art obtained from creators or their heirs (see section 10).

You cannot make an item eligible for the schemes by refraining from claiming the VAT back on it. Any item on which you were charged VAT will be ineligible.

2.7 Which categories of goods can I sell under the margin schemes?

This is a quick guide to the goods which are eligible to be sold under the scheme. You should refer to section 20 at the end of this notice, where we have reproduced the law on eligible goods, if you are in any doubt.

Second-hand goods

The legal definition of second-hand goods is goods which are suitable for further use as they are, or after repair. In most cases, goods which are second-hand in the ordinary usage of the term will be eligible for the margin schemes.

For the special rules about the legal definition of a second-hand motor vehicle, see Notice 718/1The VAT Margin Scheme on second-hand cars and other vehicles.

Works of art

The legal definition of works of art includes pictures, paintings, collages and drawings executed by hand by the artist. Craft items and items produced in a technical or industrial context may not be eligible to be sold under the margin schemes. If you are in any doubt, please check the list in paragraph 20.1.

Antiques and collectors’ items

The legal definition of an antique is an item, other than a work of art or a collectors’ item, which is over 100 years old.

Not everything which somebody might collect will be included in the legal definition of a collectors’ item for margin scheme purposes. If you are in any doubt, check the list in paragraph 20.1.

2.8 Are there any categories of goods I can’t sell under the schemes?

Yes. You must not use a margin scheme to account for sales of

  • precious metals
  • investment gold, or
  • precious stones.

There is more information about these categories of goods in paragraph 20.2.

You can only use a margin scheme to account for sales of air guns if you are registered under the Firearms Act 1968.

There are special rules about types of goods you must not sell under Global Accounting. See paragraph 14.5 for more information.

2.9 Can I sell all eligible goods under the schemes?

No. You can only use a margin scheme if both

  • the item, and
  • the circumstances in which you bought it

are eligible. Eligible circumstances are those in which you were not charged VAT when you purchased the item.

The most common ones are:

  • where you buy the goods from a private individual or an unregistered business which does not have to charge VAT to you, and
  • where you buy the goods from another business which is selling them on to you under a margin scheme.

If you have bought an item and VAT is shown separately on the purchase invoice, you can’t sell that item on under a margin scheme, even if you haven’t claimed the VAT back, with the exception detailed below.

The only exception to this rule is where you opt to use one of the margin schemes for imported works of art, antiques and collectors’ items and for works of art obtained from creators or their heirs (see section 10).

2.10 What if I make sales under the normal VAT rules as well?

You can use a margin scheme for some of your sales and the normal rules for others.

But, if you have sold an item under the normal VAT rules (that is, you charged VAT on the full selling price), you can’t go back and apply a margin scheme to that sale later.

2.11 How do the margin schemes affect VAT on my overheads?

You can reclaim VAT you are charged on any business overheads, repairs, parts or accessories, as usual. But you must not add any of these costs to the purchase price of the goods you sell under the scheme.

For example, if you purchase new parts and fit them to a second-hand clock, you cannot add the cost of those parts to the purchase price you use when you calculate your margin.

3. Making your margin scheme calculations

3.1 How do I calculate my selling price?

Your selling price is everything which you are to receive for the goods, whether from the buyer or a third party. It includes incidental expenses directly linked to the sale, for example:

  • commission
  • packaging
  • transport, and
  • insurance costs

which you have charged to the customer.

Optional extras charged to the buyer, including any insurance provided by a third party, and disbursements do not form part of the selling price: you should account for these separately outside the Margin Scheme. You can find more information about disbursements in section 25 of Notice 700 The VAT Guide.

If


then


the buyer is charged by another business for, for example, delivering the item


that is a separate supply of services between the courier and the buyer: it will not form part of your selling price.


The consideration you receive for the goods may not be wholly in money: if that is the case, the normal rules about value in Notice 700 The VAT Guide will apply.

3.2 How do I calculate my purchase price?

Your purchase price is everything which you had to pay for the goods: it will mirror the rules for the selling price described in paragraph 3.1. It includes incidental expenses directly linked to the purchase, for example:

  • commission
  • packaging
  • transport, and
  • insurance costs

which you were charged by your supplier.

You must not include any cost to you of bringing the goods to sale. Your purchase price does not include the cost of repair, refurbishment or your business overheads.

For example, if you purchase an antique table, and have it restored prior to putting it up for sale, you must not add the cost of the restoration to the purchase price of the table. You must use the original price you paid for the table when you calculate the margin for the purposes of the scheme.

Remember: the margin schemes tax the difference between what you paid for the item and what you sold it for, not the overall profit you have made on it.

3.3 How do I calculate the margin?

Under the margin schemes, you only have to account for VAT when you sell an item for more than you paid for it.

To work out the VAT due on an individual Margin Scheme sale, follow the steps in the example below:

Steps


 

(a) Purchase price


£1,500


(b) Selling price


£2,000


(c) Gross Margin (b – a)


£500


(d) VAT payable (c x 1/6 )


£83.33


The calculation of the VAT due depends on the VAT rate in force.

The VAT fraction allows you to calculate the amount of VAT included in a given sum of money.

A standard rate of VAT of 20% gives a VAT fraction of 1/6. When you have worked out your gross margin, multiply the figure by 1, then divide by 6.

For more information about how to calculate your margin if you are using Global Accounting, see paragraph 14.8.

4 Buying and selling goods under the Margin Scheme

The rules in this section have the force of law.

4.1 What must I do when I buy goods?

The table below lists the steps you must follow when you buy goods for resale under the Margin Scheme.

Step


Action


Details


1


Check that the item is eligible for the scheme.


See section 2 for these rules.


2


Obtain a purchase invoice.


If you are buying from a private individual or an unregistered business, you must make out the invoice yourself and include all of the details in paragraph 5.3.


3


Enter the purchase details of the item in your stock book under the appropriate headings.


The purchase price must be the one you agreed with the seller. You must not alter this price and you must not add the cost of repair, refurbishment or business overheads to it.


If you buy a number of items as a single lot but intend to sell them separately, you must allocate a purchase price to each one.


4.2 What must I do when I sell goods?

The table below lists the steps you must follow when you sell goods under the Margin Scheme.

Step


Action


Details


1


Check first that you have followed all of the rules relating to the purchase of the item.


See paragraph 4.1. If you have not, you cannot use the Margin Scheme.


2


Make out a sales invoice.


The invoice must include all of the details in paragraph 5.3.


3


Enter the sales details of the item in your stock book under the appropriate headings.


 

4


Issue the invoice to your customer and keep a copy for your records.


If you include more than one item on the same sales invoice, you must allocate a selling price to each one.


5. Records and accounts

The detailed rules in this section have the force of law.

5.1 What records must I keep?

Notice 700/21 Keeping VAT Records gives guidance on the general records you must keep if you are registered for VAT.

If you use the Margin Scheme, there are some additional record keeping rules which apply to your stock book and invoices – paragraphs 5.2 to 5.3 give details.

These additional rules exist so that there will be a clear audit trail of the margin you have achieved on each item you have sold. It’s important that you keep to these rules so that you can continue using the Margin Scheme. If we can’t check the margins you have declared from your records, VAT will be due on the full selling price of the goods you’ve supplied, even if they were otherwise eligible for the scheme. If you are not sure whether your records meet the Margin Scheme rules, please contact our Helpline.

5.2 What are the rules for stock books?

You must keep your stock book up to date and it must include all of the information in the table below. This applies to each item you purchase for resale under the Margin Scheme. You may, if you wish, include further information for your own accounting purposes.

Purchase details


Sales details


Stock number in numerical sequence


 

Date of purchase


Date of sale


Purchase invoice number (unless you made out the purchase invoice yourself – see 5.3)


Sales invoice number


Purchase price


Selling price, or method of disposal


Name of seller


Name of buyer


Description of the item


 
 

Margin on sale (sales price less purchase price)


 

VAT due (margin x 1/6).


You must include your Margin Scheme calculations under the appropriate headings in your stock book. No VAT will be due if your purchase price is higher than, or the same as, your selling price. In these circumstances you should show the VAT due as ‘Nil’ in your stock book.

You must not offset any VAT on goods which you sold at a loss against VAT on goods which you have sold at a profit. The exception to this is if you use Global Accounting. For more information about Global Accounting, see section 14.

An example of a Margin Scheme stock book is included at section 6.

5.3 What are the rules for Margin Scheme invoices?

The information in the table below must always appear on the invoices you receive, or issue.

Remember: if you are buying from a private individual or an unregistered business, you must make out the purchase invoice yourself.

Purchase invoices


Sales invoices


seller’s name and address


your name, address and VAT registration number


your name and address


the buyer’s name and address


a means of cross-referencing between the sales system and the stock book, for example, the stock book number


a means of cross-referencing between the sales system and the stock book, for example, the stock book number


invoice number (unless you made out the purchase invoice yourself)


invoice number


date of transaction


date of transaction


a description of the item


a description of the item


total price – you must not add any other costs to this price


total price – you must not show VAT separately


if you bought the item from another VAT-registered business, any of the following:


  • Margin Scheme - second hand goods, or
  • Margin Scheme - works of art or
  • Margin Scheme - collectors' items and antiques.

any of the following:


  • Margin Scheme - second hand goods, or
  • Margin Scheme - works of art or
  • Margin Scheme - collectors' items and antiques.

Note: If the purchase invoice shows a separate VAT amount, the item is not eligible to be sold under the Margin Scheme.

5.4 Filling in your VAT return

You will need to fill in a VAT return at the end of each tax period. Here are the special rules you must follow for any goods which you have bought or sold under a margin scheme during the tax period:

  • Box 1 Include the output tax due on all eligible goods sold in the period covered by the return.
  • Box 6 Include the full selling price of all eligible goods sold in the period, less any VAT due on the margin.
  • Box 7 Include the full purchase price of eligible goods bought in the period.

There is no requirement to include margin scheme purchases or sales in boxes 8 and 9 of your VAT return.

Further guidance on how to fill in VAT returns is available in Notice 700/12 Filling in your VAT return.

5.5 How long must I keep records?

Generally, you must keep all your business records for VAT purposes for at least six years. If the six year rule causes you serious storage problems or undue expense, then you should consult our Helpline. We may be able to allow you to keep some records for a shorter period.

But if your current stock includes items which you obtained more than six years ago, you must retain all the evidence which will show their eligibility for margin scheme treatment when you eventually sell them.

5.6 Do I need to keep records for goods on sale or return?

If your stock includes goods supplied to you on a sale or return basis (see Notice 700 The VAT Guide, paragraph 14.4), you must include, in your stock book or in a separate record, the following details for each item:

  • the date of transfer of the item
  • description of the item
  • the name and address of the person transferring the item to you, and
  • the date of sale or return.

Similarly, if any goods are removed from your stock on a sale or return basis to another business’s premises, you should note your stock record with the date and details of the business to whom you have transferred the goods.

5.7 How do I treat invoices in foreign currencies?

If you are buying and selling eligible goods in a foreign currency (including euro), you must convert the price into sterling in order to calculate your margin.

Invoice


 

Purchase invoices


If you buy a number of items at an inclusive price and do not intend to sell them as one lot, you must convert the price to sterling and then apportion this amount between the items.


You must then enter the sterling amounts in your stock record on an item by item basis.


Sales invoices


If you issue a sales invoice in a foreign currency, the invoice must also show the sterling equivalent of the selling price.


If the invoice covers more than one item, it must show the price, both in foreign currency and sterling, for each item. You must then enter the sterling amounts in your stock record on an item by item basis.


If, however, you are selling as one lot goods which you bought as one lot, you need only show a total foreign currency and sterling value for that lot.


To convert amounts in foreign currencies you must use one of the methods outlined in Notice 700 The VAT Guide. Whichever method you choose, you must use the exchange rate which was current at the time the transaction took place.

6. Example of a Margin Scheme stock book

6.1 How do I complete my stock book?

Example:

Purchase Details


1


2


3


4


5


6


Stock number


Date of purchase


Purchase invoice no


Purchase price


Name of seller


Description of item


100


01/02/08


50


£2500


Mr J Smith


Clarice Cliff tea service, Crocus pattern


Sales Details


Accounting Details


7


8


9


10


11


12


Date of sale


Sales invoice number


Name of buyer


Selling price


Margin (11-4)


VAT due


31/03/08


150


Mr F Bloggs


£3000


£500


£83.33


7. The margin schemes and buying and selling within the EC

7.1 Can I use the schemes for goods I buy from within the EC?

All Member States operate a margin scheme but you can only use one of the UK margin schemes for the onward sale of goods in the following circumstances:

7.1.1 You buy goods from a private individual

There will be no VAT due on these goods when they are brought into the UK. You can use a margin scheme for the onward sale of these goods, provided you can meet all the conditions of the scheme.

7.1.2 You buy goods from a registered business under a margin scheme

As with transactions between UK VAT-registered dealers, you can use a margin scheme if one was used when the goods were supplied to you.

All Member States operate a margin scheme. Margin scheme invoices must include one of the following:

  • a reference to Articles 313, 326 or 333 of the EC VAT Directive 2006/112/EC
  • a reference to the corresponding part of the relevant national VAT legislation, or
  • another declaration to indicate that the goods have been sold under the Margin Scheme.

7.2 How should I treat invoices from EC businesses?

Some Member States require invoices for supplies made in their country to include the VAT registration number of the customer.

If


then


you receive an invoice for a supply from another Member State which shows:


  • one of the margin scheme indications listed in 7.1.2 above, and
  • your VAT registration number

if you are sure that the supply has been made under a margin scheme, you can enter the details into your scheme records.


you receive an invoice for a supply from another Member State and it


  • shows your VAT number, but
  • does not show one of the margin scheme indications listed in 7.1.2 above

it is likely that the goods have not been supplied under a margin scheme.


You must account for acquisition tax in the UK and charge VAT on the full selling price of the goods when you sell them. There is more information about such transactions in Notice 725 The Single Market.


If you are in any doubt about whether the supply was made under a margin scheme, you should check with your supplier before entering the details into your records.

7.3 How do I treat sales to other Member States?

Sales made under a margin scheme to other EC Member States are treated in exactly the same way as sales within the UK.

This means that VAT is due on the margin in the UK and you must issue a normal margin scheme sales invoice (see paragraph 5.3).

If


then


you are selling goods under the scheme to a registered business in another Member State


there is no requirement to obtain that business’s VAT registration number.


If you prefer, you can, in agreement with that dealer, treat the sale outside the margin scheme. If you do that, you can zero-rate the sale under the normal EC supply rules. You will have to obtain the dealer’s VAT registration number and show it on your invoice. For detailed information about the rules, see Notice 725 The Single Market.


you are selling eligible goods to EC private individuals you can either use


  • one of the margin schemes, or
  • the normal VAT arrangements, that is you charge VAT on the full selling price.

Paragraph 7.5 explains the procedures for dealing with the purchase and sale of New Means of Transport.

7.4 How do I treat the transfer of my own goods?

The transfer of goods within the same legal entity from one EC Member State to another is deemed to be a supply of goods for VAT purposes. See section 9 of Notice 725 The Single Market.

If


then


  • you transfer your own goods to another EC Member State using one of the margin schemes, and
  • you supply the goods to yourself at the price for which you obtained them
  • you will not have to account for any VAT on the transfer in the UK, and
  • you will not have to account for acquisition VAT in the other Member State.

If you sell the goods on after you transferred them, that sale will be subject to the VAT rules of the Member State in which you make the sale.


7.5 Can I use the margin schemes for the purchase and sale of new means of transport?

No. New means of transport are always liable to VAT in the Member State of destination. This means that any new means of transport that you purchase from, or sell to, another Member State will not be eligible for the Margin Scheme.

You can find more information in Notice 728 New Means of Transport.

7.6 Do I have to complete EC sales lists and Intrastat?

No.

VAT-registered businesses in the UK who make supplies of goods to VAT-registered businesses in other EC Member States are required to complete lists (form VAT 101) of their EC supplies.

But you should not include any margin schemes transactions on an EC Sales list because they will be subject to VAT in the UK and therefore not eligible for zero-rating.

Intrastat is the system for collecting statistics on the trade in goods between EC Member States. But, because margin scheme goods are subject to VAT in the country of origin, there is no requirement either

  • to include margin scheme purchases or sales in boxes 8 and 9 of your VAT return, or
  • to complete a supplementary declaration.

You can find guidance on completion of your VAT return in paragraph 5.4.

You can find further information on intra-EC transactions in the following publications:

Notice 723 Refunds of VAT in the EC for EC and non-EC businesses

Notice 725 The Single Market

Notice 60 Intrastat General Guide

8. The margin schemes and imports and exports

8.1 Can I use the margin schemes when I sell goods I have imported?

Not usually, no.

You will be charged VAT on the full value of any goods you import from countries outside the European Community. This means you can’t use a margin scheme when you sell those goods on, even if you haven’t reclaimed the VAT on the purchase.

Also, you can’t use a margin scheme when you sell goods which have been imported into other EC Member States, and which you have got somebody to collect on your behalf.

There is one exception to this rule, and it relates to imported works of art, antiques and collectors’ items. You can opt to use the Margin Scheme (or the VAT Auctioneers’ Scheme) for such items provided you comply with the conditions in section 10.

8.2 What should I do if I export goods?

If


then


you export eligible goods (see paragraph 20) to a destination outside the European Community


you may zero-rate the sale, provided you can meet the conditions set out in Notice 703 VAT Exports and removals of goods from the United Kingdom.


you can meet the conditions


you should insert ‘nil’ in the VAT due column of your stock book. You should refer in your stock book to the reason why you have closed the entry.


8.2.1 What if someone is selling the goods on my behalf?

You cannot usually zero-rate an export if you sell the goods through an auctioneer or dealer who acts as an agent in their own name.

This is because the sale of the goods is treated as two separate supplies: the first from you to the agent, and the second from the agent to the purchaser. Your sale of the goods is a supply to the agent, rather than a supply to the final purchaser. So it can only be treated as a zero-rated export if the agent is located outside the EC.

8.2.2 What if I am an auctioneer?

If you


then


  • are acting in your own name
  • can meet the conditions for zero-rating in Notice 703, and
  • sell the exported goods under the Auctioneers’ Scheme
  • you will be making a combined supply of goods and services, with VAT due on the profit margin
  • the liability of your services will follow that of the goods, with the result that the whole supply will be zero-rated.

However, you must obtain proof of export, as described in Notice 703, when you apply zero-rating to the margin.


sell the exported goods under the Margin Scheme


the liability of your services will not follow that of the goods because your services are charged and invoiced outside the scheme.


You will be able to sell the goods at the zero-rate outside the scheme if you can meet the conditions in Notice 703, but your services will normally be standard-rated.


8.2.3 What about the Retail Export Scheme?

The retail export scheme allows certain overseas visitors to get a VAT refund on goods they buy and export in their personal luggage. You can use the retail export scheme together with the Margin Scheme or the Auctioneers’ Scheme but, if you do, you must account for VAT on the sale until:

  • you receive a refund document stamped by UK or EC Customs, and
  • you have made the refund to your customer.

You can find more information about the retail export scheme in Notice 704 VAT retail exports.

9. Transfers of going concerns and assignments of rights

9.1 What if I take over a business as a going concern (TOGC)?

If you obtain goods under a transfer of a going concern (TOGC), no VAT will be chargeable on the transfer. But this does not necessarily mean that you will be able to sell the goods on under a margin scheme.

You will only be able to use the scheme if the last person to obtain the goods – other than by way of a TOGC or an assignment of rights – would have been entitled to use a margin scheme to sell them.

Where there has been

  • a succession of TOGCs or assignments, or
  • a mixture of both

it is the first person in that chain who must have been entitled to use the margin scheme himself.

9. 2 What about the records?

From 1 September 2007, the seller in a TOGC retains the records. However:

  • the seller must make available to the buyer any information the buyer needs to comply with his duties under the VAT Act 1994, and
  • where the buyer applies to HMRC for permission to take on the seller’s VAT number, the seller is required to transfer the records to the buyer. If the seller needs to retain the records, he may apply to HMRC for permission to do so.

The records will include the purchase invoices for stock on hand. You will be able to tell from these invoices whether or not the goods are eligible to be sold under the scheme.

If


then


the transferor of the goods bought them on margin scheme invoices


you will be able to sell them under the scheme.


the transferor bought them on invoices showing VAT


they are not eligible for the scheme and you will have to account for VAT on the full selling price when you sell them.


So it is in your own interest when you buy a business as a TOGC to

  • check the position with the seller, and
  • make sure that you have all the records you need if you intend to sell eligible goods on under a margin scheme.

9.3 What will my margin scheme purchase price be?

Your purchase price will be the price paid when the eligible item was bought by the person in the chain who was entitled to use a margin scheme to sell it himself.

You will be able to identify the original purchase price from the purchase invoices which will form part of the business records.

If


then


  • you have obtained goods under a TOGC from a bank or financial institution, and
  • that body had obtained those goods when they were assigned the rights in a hire purchase or conditional sale agreement

the records that are usually kept in relation to these transactions should provide the information you need.


9.4 What are the rules for banks and finance houses?

If you are


then


  • a bank or a financial institution, and
  • you have acquired eligible goods as a result of having been assigned the rights to them in hire purchase or conditional sale agreements

you can only use the Margin Scheme to sell those goods if the last person to obtain them – other than by way of an assignment of rights or a TOGC – would have been entitled to use the Margin Scheme.


Where there has been:

  • a succession of assignments or TOGCs, or
  • a mixture of both

it is therefore the first person in that chain who must have been entitled to use the Margin Scheme.

10 The margin schemes in particular circumstances: works of art, antiques and collectors’ items on which VAT has been charged

10.1 What is this section about?

When you obtain goods which have had VAT charged on their full value, they are not normally eligible for the margin schemes.

However, you may opt to use the Margin Scheme or Global Accounting for

  • works of art, antiques and collectors’ items which you have imported from countries outside the European Community, and
  • works of art you have obtained (that is, which were supplied in the UK or acquired from another Member State) from creators or their heirs, whether or not VAT was charged on their purchase or acquisition.

If


then


  • you don’t opt to use a margin scheme, or
  • you can’t meet the conditions described in paragraph 10.2

you must sell the goods under the normal VAT rules.


You can find details of import procedures and special arrangements for supplies of temporarily admitted (TA) goods in Notice 702 Imports.

10.2 What are the conditions for using this option?

If you want to use the Margin Scheme or Global Accounting in any of these circumstances, you must meet the following conditions:

  • you must inform our VAT Written Enquiries Team, 4th Floor West, Alexander House, 21 Victoria Street, Southend-on-Sea, Essex, SS99 1BD, in writing that you are going to take up the option, and you must specify the date from which you will be applying it
  • you must exercise the option for a period of at least two years, after which you must inform the VAT Written Enquiries Team (please see address above) in writing as and when you wish to stop using the scheme
  • you must use the scheme in respect of all transactions and goods listed in paragraph 10.1, not just in respect of certain categories of transactions or certain categories of goods, and
  • if, having exercised the option, you decide to sell any goods covered by the option outside the scheme (for example, if you export the goods), you are not entitled to recover any input tax on those goods until the period in which you account for VAT on their sale.

10.3 What is my purchase price when I use this option?

10.3.1 Imported works of art, antiques and collectors’ items

When you opt to use a margin scheme for imported works of art, antiques or collectors’ items, those goods will carry a reduced VAT rate of 5%.

Your purchase price will be the value for VAT at import, plus the import VAT.

  • You must not reclaim the import VAT as input tax.
  • Notice 702 VAT Imports contains detailed guidance about the valuation of imported goods for VAT purposes.

Example: VAT-registered dealer using the Margin Scheme option for an imported antique item

Example


a)


Value for VAT at import


£1,000


b)


Import VAT (a × 5%)


£50


c)


Purchase price for margin scheme (a + b)


£1,050


d)


Selling price


£1,500


e)


Margin (d - c)


£450


f)


VAT due (e × 1/6)


£75


10.3.2 Works of art obtained from the creator or their heirs

When you opt to use a margin scheme for works of art obtained (that is supplied in the UK, or acquired from another Member State) from artists or their heirs, you must not recover any VAT you are charged. Under the Margin Scheme, your purchase price will be the total price of the work of art inclusive of any VAT.

If the work of art is an acquisition from another EC Member State you should:

  • account for acquisition tax in box 2 of your VAT return
  • not recover the corresponding acquisition tax in box 4 (Input Tax), and
  • add this unrecoverable acquisition tax to the net purchase price for Margin Scheme purposes.

Example: VAT-registered dealer using the Margin Scheme for goods from an artist or his heirs acquired from another Member State

Example


a)


Value of acquisition


£1,000


b)


Acquisition VAT accounted for in box 2 of your VAT return


£175


c)


Purchase price for Margin Scheme (a + b)


£1,175


d)


Selling price


£2,000


e)


Margin (d - c)


£825


f)


VAT due (e × 1/6)


£137.50


If the work of art was supplied in the UK, you must not reclaim any VAT charged by the supplier.

11. The margin schemes and buying and selling at auction

11.1 Who should read this section?

You should read this section if

  • you sell goods under the Margin Scheme or Global Accounting, and
  • you buy or sell at auction.

11.2 What should I do if I buy goods at auction?

If you intend to use the Margin Scheme or Global Accounting for the onward sale of goods you have bought at auction, you must check whether the goods are eligible.

You should be able to find this out from the auctioneer’s sales catalogue.

If the auctioneer charges VAT separately on the hammer price of goods you buy, you won’t be able to use a margin scheme for your onward sale.

11.3 What is the purchase price of eligible goods I buy at auction?

Your purchase price will be the hammer price of the goods plus charges for services.

The invoice you get from the auctioneer will itemise, for each lot you have bought, the hammer price of the goods and any charges for services (for example, buyer’s premium). These charges must not show VAT separately.

This will be your purchase price for the purposes of the Margin Scheme or Global Accounting, and is the amount that you must show in your stock book. It should be clearly identified on the invoice you get from the auctioneer.

If the auctioneer bills you for any other services, and charges VAT on them separately, you can reclaim the VAT under the normal rules. You must not add those charges to your own margin scheme purchase price. To avoid confusion, you may want to ask the auctioneer to provide you with a separate invoice for such charges.

If you are in any doubt about what your margin scheme purchase price should be for goods you have bought at auction, you should check with the auctioneer.

11.4 What is the selling price of eligible goods I sell at auction?

Before the sale is due to take place, you should discuss with the auctioneer whether you want it to be treated under the Auctioneers’ Scheme or under the normal Margin Scheme. (The Auctioneer’s Scheme is a special variation on the normal Margin Scheme. It works by creating a margin which is equal to the auctioneer’s charge for his services to both the vendor and the purchaser. See Notice 718/2 The Auctioneers’ Scheme for more information.)

If the auctioneer uses


the invoice will include


your margin scheme selling price will be


the Auctioneers’ Scheme


  • the hammer price of the goods
  • his commission charges, and
  • the net amount payable to you.

None of these amounts should show VAT separately.


the hammer price less the commission charge.


the Margin Scheme


the hammer price of the goods.


VAT must not be shown separately on this amount.


the hammer price.


Your selling price for margin scheme purposes should be easy to identify from the invoice you receive. You should check with the auctioneer if you are in any doubt.

If the Auctioneer’s Scheme is used, you will get a separate invoice for any charges other than the auctioneer’s commission.

If the Margin Scheme is used, you will be invoiced separately for:

  • the auctioneer’s commission, and
  • any other charges.

You can reclaim the VAT on these invoices under the normal rules but you must not deduct the charges from your margin scheme selling price.

12. The margin schemes and joint purchases and shares

12.1 What is this section about?

This section tells you how to account under the margin schemes for goods

  • in which shares have been sold, or
  • which are jointly-owned.

If your specific circumstances are not covered in this section, you should contact our Helpline.

12.2 How do I treat shares?

If


then


  • you have an eligible item in stock, and
  • you sell a share in it
  • this is a supply of an undivided share in goods and therefore a supply of services
  • the sale is not eligible to be accounted for under a margin scheme, so you must account for VAT under the normal rules.

you sell an item in which the title to the goods is shared


you must


  • account for the VAT due on the whole of the sale, not just on your own share, and
  • issue the other shareholders with statements which show their share of the proceeds of the sale, but which don’t show any VAT.

12.3 How do I treat joint purchases?

If:

  • you and other dealer(s) jointly buy an eligible item for resale, and
  • it is you who makes the purchase

you should follow the steps in the table below:

Step


Action


Details


1


Keep the purchase invoice.


The invoice must show all the details set out in paragraph 5.3.


2


Enter the purchase details of the item in your stock book.


The purchase price for the purposes of calculating the margin will be the full joint purchase price.


3


Invoice the other joint buyers for their contribution towards the cost of the item.


There must be no VAT on the invoices and you must endorse each invoice along the following lines:


‘This payment is your contribution towards the purchase of the above article. I shall be accounting for the full amount of VAT due under the scheme when it is sold’.


4


Keep copies of those invoices and enter the details in your stock book.


You won’t use these sales figures when you calculate the overall margin achieved on the final sale.


12.4 What if I then sell the goods?

If:

  • you bought the item, and
  • you are also the one who sells it

you should follow the steps in the table below:

Step


Action


Details


1


Issue a sales invoice and keep a copy of it.


Your invoice must show all the details set out in paragraph 5.3.


2


Enter the details of the sale in your stock book.


For the purposes of calculating the margin on the sale, your selling price is the full joint selling price, not just your share of the proceeds.


3


Issue statements to the other joint buyers showing their shares of the proceeds of the sale.


There must be no VAT on the statements and you must endorse each invoice along the following lines:


‘This payment is your share of the proceeds of the sale of …………… I am accounting for the full amount of VAT due on the sale under the scheme’.


12.5 What if one of the other joint owners sells the goods?

If:

  • you bought the item, but
  • one of the other joint owners sells it

they should follow the steps in the table below:

Step


Action


Details


1


Obtain the purchase invoice for the goods from you.


 

2


Issue a sales invoice and keep a copy of it.


Their invoice must show all the details set out in paragraph 5.3.


3


Complete their own stock book, treating the purchase and sale of the article as having being made entirely by themself.


For the purposes of calculating the margin on the sale, the purchase price is the full joint purchase price and the selling price is the full joint selling price.


4


Issue statements to the other joint owners showing their shares of the proceeds of the sale


There must be no VAT on the statements and he must endorse each invoice along the following lines:


‘This payment is your share of the proceeds of the sale of …………… I am accounting for the full amount of VAT due on the sale under the scheme’.


Having passed the purchase invoice on to whoever made the sale, you must close down the entry for it in your own stock book, and make a note that VAT has been accounted for by another joint owner. (You do not have to account for any VAT on the transaction.)

You should then cross-refer that entry in your stock book to the sale statement you receive from the other person – step 4 in the above table.

12.6 What if I sell the goods but I didn’t buy them?

If:

  • you didn’t buy the item, but
  • you are the one selling it

you should follow the steps in the table below:

Step


Action


Details


1


Obtain the purchase invoice for the goods from the joint owner who bought them.


 

2


Issue a sales invoice and keep a copy of it.


Your invoice must show all the details set out in paragraph 5.3.


3


Complete your stock book, treating the purchase and sale of the article as having being made entirely by yourself.


For the purposes of calculating the margin on the sale, the purchase price is the full joint purchase price and the selling price is the full joint selling price.


4


Issue statements to the other joint owners showing their shares of the proceeds of the sale.


There must be no VAT on the statements and you must endorse each invoice along the following lines:


‘This payment is your share of the proceeds of the sale of …………… I am accounting for the full amount of VAT due on the sale under the scheme’.


Having passed the purchase invoice on to you, the purchaser must close down the entry for it in their stock book, and make a note that VAT has been accounted for by another joint owner.

13. Answers to common questions

13.1 Can I get relief from bad debts?

If you supply goods and do not receive payment within certain time limits you may claim relief from VAT on the ‘bad debt’. You will find full details of the time limits and conditions for claiming in Notice 700/18 Relief from VAT on bad debts.

If you sold the goods under a margin scheme, the amount of VAT on which you claim relief cannot be higher than the amount of VAT you accounted for on the margin.

To explain, here are two examples based on the following figures:


Goods purchased for


£400


Goods sold for


£500


Margin


£100


VAT on the margin (£100 × 1/6)


£16.66


Example 1. The customer pays £350, leaving a debt of £150.

The debt is more than the margin so the potential bad debt relief is £100 (the margin) × 1/6 = £16.66.

Example 2. The customer pays £450, leaving a debt of only £50. The debt is less than the margin so the potential bad debt relief is £50 (the debt) × 1/6 = £8.33.

If you receive payment from your customer after making a claim for bad debt relief, you must refund the appropriate amount to us.

13.2 What if I sell insurance with a margin scheme supply?

If you sell insurance with a standard-rated product (such as a domestic appliance) the insurance will be exempt from VAT provided:

  • it is supplied under a contract between an insurer and your customer
  • it is the customer’s own risk which is being insured, that is, the individual customer’s risk is referred to in the policy. It is not necessary for the customer to be specifically named. If you and the customer are the insured, it is sufficient for the policy to refer to, for example, ‘J. Smith and customers’, and
  • you disclose the amount of the premium, and any fee (or commission) charged over and above that premium on your sales invoice at the time of sale.

If you do not meet these requirements, the insurance element of your supply will be standard-rated.

While insurance is exempt from VAT, it is subject to insurance premium tax (IPT), which is usually accounted for by the insurer. IPT is due on the gross premium. In most cases, this is the amount the customer pays for the insurance. It will include

  • the premium due to the insurer, plus
  • any commission or fee that you may charge on top.

If you do make additional charges, you should disclose these amounts to the insurer so that they can account for the correct amount of IPT.

  • where
  • the insurance is subject to the higher rate of IPT (17.5%), and
  • you charge a fee in connection with that insurance

you may be liable to register and account for IPT on the fee.

You can find further information in Notice 701/36 Insurance and Notice IPT 1 A General Guide to IPT. Guidance on Mechanical Breakdown Insurance (MBI) and warranties is in Notice 718/1 The VAT Margin Scheme on second-hand cars and other vehicles.

13.3 How do I deal with gifts?

If


then


you sell an item which was given to you in the course of your business


you cannot use a margin scheme.


You must account for VAT on the full selling price.


you give away an item which would have been eligible for sale under a margin scheme


no VAT is due.


You must include full details of the person you gave the item to in your stock book.


13.4 How do I deal with private sales?

The private sale of goods which are not assets of your business is usually outside the scope of VAT and no VAT is due.

However, if:

  • you are a sole proprietor, and
  • you sell an eligible item (see paragraph 2.7) which you transfer to your business from your private holdings

you can use a margin scheme for the sale of that item.

You must be able to produce evidence of what the purchase price was when you bought it for your private use. If you cannot do this, you must account for VAT on the full sales value.

13.5 How do I deal with hire-purchase sales?

13.5.1 Who is my customer?

If


then


you sell an eligible item and arrange hire-purchase (HP) terms with a finance company on behalf of your customer


you are deemed to be selling the item to the finance company.


No VAT is due on the finance charges, provided these are itemised separately.

13.5.2 What sales records do I need to keep?

You must transfer the sales price of the item from the HP agreement to your stock book.

If


then you must


  • you have issued your own sales invoice to your customer, and
  • you have a copy of the HP agreement

either:


  • attach a copy of the completed HP agreement to the sales invoice, or
  • include a cross-reference to the HP agreement in your sales records.

the finance company holds the HP agreement and you don’t get a copy of it for your records


keep a copy of:


  • the agreed quotation, or
  • the agreed proposal documents

together with:


  • the name of the finance company
  • the date, and
  • the reference number of the final agreement

in your sales records.


You may use a copy of the HP agreement as your sales invoice provided it shows:

  • all the identifying details of the item, and
  • the cash price of the item as the gross price payable.

(The gross price is the amount borrowed plus any cash deposit paid, plus any amount allowed for a part-exchange item.)

Remember, VAT must not be shown separately on either

  • the HP agreement, or
  • the customer’s sales invoice.

13.6 How do I treat part-exchange goods?

If you

  • sell eligible goods, and
  • take others in part-exchange

the selling price on which you calculate your margin must include the value of the part-exchanged goods.

For example, you sell a boat for £2,500 for which you paid £1,500. However, you also take a boat in part-exchange which you value at £500 so the customer actually only hands over a balance of £2,000. The selling price you insert in your stock book must be £2,500 and you must account for VAT on the full margin of £1,000.

At the same time, you must use the value at which you part-exchanged an item as its purchase price in your stock book. In the example above, your purchase price would be £500. You must not alter this purchase price.

If you buy from


then


another VAT-registered dealer


you must obtain a purchase invoice for the goods.


a private person or unregistered dealer


you may include details of part-exchange items on your sales invoice provided all the requirements of paragraph 5.3 are met.


13.7 How do I deal with occasional sales of eligible goods?

If


then


you are not in business to buy and sell second-hand goods, but:


  • you very occasionally find yourself with an eligible item to sell, and
  • you would like to use a margin scheme for the sale

you need not comply with the full record keeping requirements in section 4 and 5, provided you:


  • meet the other conditions of the scheme, and
  • hold evidence of both the purchase and selling price.

13.8 How should finance companies treat the sale of second-hand repossessed goods?

Repossessed goods are goods which have been:

  • voluntarily returned under an HP agreement
  • repossessed under the terms of a finance agreement, or
  • returned by a customer under the Consumer Credit Act once they have made 50% of the total payments due.

If


then


  • a finance company sells repossessed second-hand goods, originally sold under a margin scheme, and
  • the goods are in the same condition as when they were repossessed

they do not have to account for VAT on the sale.


The condition of the goods is generally unaffected by:


  • cleaning, or
  • inclusion of instruction manuals if they are otherwise missing.
  • a finance company sells repossessed second-hand goods, originally sold under a margin scheme, and
  • the condition of the goods has changed

they may sell those goods under a margin scheme.


The purchase price for margin scheme purposes will be the original price the finance company paid to the dealer.


The condition of the goods will have changed if any:


  • improvements
  • repairs
  • replacement parts, or
  • general making good of damage

have been carried out.


13.9 What if I buy goods from an insurance company or finance house?

If you buy eligible goods from either:

  • an insurance company which has acquired them as a result of an insurance claim, or
  • a finance house which has repossessed them

the company/finance house will not charge you VAT if:

  • the goods are sold on in exactly the same state as they were in when they were acquired, and
  • the goods were obtained by the company/finance house from a person who would not themselves have charged VAT on their sale, for example, a private individual.

You can resell such goods under a margin scheme provided you can meet the conditions of the scheme.

13.10 How do I treat Artist’s Resale Right charges?

Artist’s Resale Right (sometimes known as Droit de Suite) is a royalty which is charged, in certain circumstances, when original works of art are re-sold. It was introduced into the UK in 2006. The charges are outside the scope for VAT purposes. They have no impact on margin scheme calculations. You must not reduce your margin by the cost of the charges.

14. Global Accounting

14.1 What is Global Accounting?

Global Accounting is an optional, simplified variation of the Margin Scheme.

14.2 How does it differ from the Margin Scheme?

Under


you account for VAT on


the standard Margin Scheme


the margin you achieve on the sale of individual eligible items.


Global Accounting


the margin you achieve between your total eligible purchases and total eligible sales in an accounting period.


14.3 Would I benefit from using Global Accounting?

If you:

  • buy and sell bulk volume, low value eligible goods, and
  • are unable to maintain the detailed records required of businesses who use the standard Margin Scheme

Global Accounting will suit your business and will reduce the amount of VAT you have to pay.

14.4 Which goods can I use Global Accounting for?

You can include most of the items which would be eligible for sale under the Margin Scheme (see paragraph 20.1) as long as they have a purchase price of £500 or less per item. The exceptions to this are listed in paragraph 14.5 below.

14.5 Which goods can I not use Global Accounting for?

You cannot sell any of the following goods under Global Accounting, regardless of their purchase price:

  • aircraft
  • boats and outboard motors
  • caravans and motor caravans
  • horses and ponies, and
  • motor vehicles, including motorcycles – except those broken up for scrap (see paragraph 14.9).

14.6 What do I need to consider when I start using the scheme?

When you start using Global Accounting, you may find that you already have eligible stock on hand.

If that is the case, you may include the value of this stock when you calculate your total purchases at the end of the first period. (Paragraph 14.7 explains how to value your stock on hand.)

If you don’t take your stock on hand into account, you will have to pay VAT on the full price, rather than on the margin you have achieved, when you sell it.

14.7 How do I value my stock on hand?

You must be able to identify

  • stock which is eligible for Global Accounting, and
  • its purchase value.

You would normally establish the value from the original purchase invoices.

But if:

  • you are newly registered, and
  • don’t have original purchase invoices

you may determine the purchase value using another method.

There is no set way of doing this, but you must be able to demonstrate satisfactorily to us that the method you have used has produced a fair and reasonable total. You must retain evidence of this method with the rest of your Global Accounting records for six years.

Remember, any goods you bought on an invoice which shows a separate VAT figure are not eligible for resale under the scheme.

14.8 How do I work out the VAT due under Global Accounting?

Under Global Accounting, VAT is calculated at the end of each tax period. Because you can take account of opening stock in your scheme calculations, you may find that you produce a negative margin at the end of several periods. In other words, your total purchases may exceed your total sales. In such cases, no VAT is due. But you must carry the negative margin forward to the next period as in the following example:

Period one


(a)


total purchase value of stock on hand


£10,000


(b)


total purchases from your purchase summary


£2,000


(c)


total sales from your sales summary


£8,000


(d)


margin = c - (a + b)


sales minus (purchases plus stock on hand)


£8,000 – (£10,000 + £2,000)


(£4,000)


Because the margin you have produced is negative, there is no VAT for you to pay. However, you must carry this negative margin forward into the next period as follows:

Period two


(a)


negative margin from previous period


£4,000


(b)


total purchases for this period


£1,000


(c)


total sales for this period


£7,000


(d)


margin = c - (a + b)


sales minus (purchases plus negative margin)


£7,000 - (£1,000 + £4,000)


£2,000


(e)


VAT due = margin (£2,000) × VAT fraction (1/6)


£333.33


There is no negative margin to carry forward this time. Therefore, in the third period, you would calculate VAT on the margin between total sales and total purchases.

You may only offset a negative margin against your next Global Accounting margin. You cannot offset it against any other figure or record.

You must keep copies of these calculations with your other Global Accounting records for six years.

14.9 Can I use Global Accounting for the sale of scrap?

Yes. You may include motor vehicles which would be eligible for sale under the Margin Scheme in Global Accounting if you break them up and sell them on as scrap.

You must keep the normal commercial documentation to show that the vehicle no longer exists and that the scrap parts are therefore eligible for Global Accounting.

If


then


the vehicle has already been entered into your second-hand stock book


you should close the entry and transfer the details to your Global Accounting purchase records.


you buy a scrap motor vehicle for more than £500


you can still use the Global Accounting scheme for disposal of the components.


However, any individual component valued at over £500 must be excluded from Global Accounting.


you are charged VAT separately when you buy a vehicle


you cannot use either Global Accounting or the Margin Scheme when you sell any scrap parts from that vehicle.


14.10 Can I use Global Accounting for bulk purchases and collections?

Yes, you can, even if the combined purchase price is over £500.

However, if any individual item has a purchase value of over £500, you must not sell it on under Global Accounting.

You may sell it under the normal Margin Scheme if you can meet the record keeping conditions detailed in sections 4 and 5. If you intend to do this, you will have to make sure that the item is identified and fully described on your purchase invoice.

Alternatively, you may sell the item under the normal VAT rules.

14.11 Global Accounting in other situations

If


then


you split collections of items, such as stamp collections, and either


  • sell the items separately, or
  • use them to form other collections

you can account for those sales under Global Accounting, provided all the items are eligible.


you purchase an eligible item for £500 or more, and


  • the item is made up of several components valued at less than £500, but
  • you sell the component items individually

(For example, you purchase a tea set for £600 and you sell the cups and saucers individually for £50 each.)


you can account for the sales under Global Accounting.


you purchase an eligible item for £500 or more, and


  • the item is made up of several components valued at less than £500, and
  • you sell the item in the same state as it was purchased

(For example, you purchase the tea set for £600, but you sell it on as a tea set.)


you can not account for the sale under Global Accounting.


You may account for the sale under the Margin Scheme, provided you can meet the record keeping requirements.


you combine two or more items to produce only one item for resale


(For example, you use one item as a spare part for another.)


you can account for the sale under Global Accounting.


you buy eligible items and use them to produce something which is not eligible


(For example, you buy second-hand fabrics and trimmings and make them into cushion covers.)


  • you can not account for the sale under either Global Accounting or the Margin Scheme
  • you must sell the item under the normal rules and account for VAT on the full selling price.

15. Global Accounting – records and accounts

15.1 What records do I need to keep?

You do not need to keep all the detailed records which are required under the normal Margin Scheme – for instance, you do not have to maintain a detailed stock book.

Global Accounting records do not have to be kept in any set way but they must be complete, up to date and clearly distinguishable from any other records.

You must keep records of purchases and sales as described in the following paragraphs, together with the workings you used to calculate the VAT due. You must keep all your records for six years.

If we can’t check the margins you have declared from your records, VAT will be due on the full selling price of the goods you’ve supplied, even if they were otherwise eligible for the scheme. If you are not sure about how to maintain your Global Accounting records, please contact our Helpline.

15.2 What must I do when buying goods under Global Accounting?

The boxed text below has the force of law


When you buy goods which you intend to sell under Global Accounting you must:


  • check that the goods are eligible for Global Accounting
  • obtain a purchase invoice. If you buy from a private person or an unregistered dealer, you should make out the invoice at the time you buy the goods. If you buy from another VAT-registered dealer, the dealer must make out the invoice at the time of sale, and
  • enter the purchase details of the goods in your Global Accounting purchase records. The purchase price must be the price on the invoice which has been agreed between you and the seller.

You cannot use the scheme if VAT is shown separately on the invoice.

15.3 What details must be included on purchase invoices?

The following rule/requirement/paragraph has the force of law


Purchase invoices must include:


  • your name and address
  • the seller’s name and address
  • invoice number
  • date of transaction
  • description of goods (this must be sufficient to enable us to verify that the goods are eligible for Global Accounting, for example ‘four tables, ten chairs’ - ‘assorted goods’ is not acceptable)
  • total price, you must not show VAT separately

and, for goods purchased from another VAT-registered dealer:


  • the statement "Global Accounting Invoice"

15.4 What must I do when selling goods under Global Accounting?

If you have complied with the purchase conditions above, you may use Global Accounting when you sell the goods by:

  • recording the sale in your usual way, for example, by using a cash register
  • issuing a sales invoice for sales to other VAT-registered dealers and keeping a copy of the invoice, and
  • transferring your daily takings for eligible goods and/or totals of copy invoices to your Global Accounting sales record or summary (see paragraph 15.6).

The following rule/requirement/paragraph has the force of law


You must be able to distinguish at the point of sale between sales made under Global Accounting and other types of transaction.


15.5 What details must I include on sales invoices?

The following rule/requirement/paragraph has the force of law


You must issue a sales invoice to other VAT-registered dealers. These invoices and any other Global Accounting sales invoice you issue must show the following details:


  • your name, address and VAT registration number
  • the buyer’s name and address
  • invoice number
  • date of sale
  • description of goods (this must be sufficient to enable us to verify that the goods are eligible for Global Accounting, for example ‘four tables, ten chairs’ – ’assorted goods’ is not acceptable)
  • total price – you must not show VAT separately
  • the statement "Global Accounting Invoice"
  • you are selling an item for more than £500 and you don't want the purchaser to know that you bought it under Global Accounting, you may use one of the Margin Scheme sales invoice statements listed in paragraph 5.3.

15.6 What details should I include in my purchase and sales summaries?

The following rule/requirement/paragraph has the force of law


Although you do not have to keep your purchase and sales records or summaries in any particular way, they must include the following details taken from your purchase invoices and any sales invoices you issue:


  • invoice number (where the purchase invoice shows one)
  • date of purchase/sale
  • description of goods (this must be sufficient to enable us to verify that the goods are eligible for Global Accounting, for example, ‘four tables, ten chairs’: ‘assorted goods’ is not acceptable), and total price.

Paragraph 14.8 gives an example of how you should work out the VAT due at the end of each period.

15.7 What if I stop using the scheme or transfer goods as a going concern?

The following rule/requirement/paragraph has the force of law


If you stop using Global Accounting for any reason – for example, you deregister for VAT – you must make a closing adjustment to take account of purchases for which you have taken credit, but which have not been sold (in other words, your closing stock on hand). The adjustment required in this paragraph does not apply if the total VAT due on your stock on hand is £1,000 or less. In the final period for which you are using the scheme, you must add the purchase value of your closing stock to your sales figure for that period. In this way you will pay VAT (at cost price) on the stock for which you previously had credit under the scheme.


Here is an example of a closing adjustment under Global Accounting: At the end of the period calculate:


  • Value of purchases during the period – £5,000
  • Value of sales during the period – £10,000
  • Purchase value of closing stock – £ 8,000
  • Add purchase value of closing stock to sales for period (c + b) – £18,000
  • Subtract purchases in this period from sales (d - a) – £13,000
  • VAT due on margin (e x 1/6) – £2,166.66

You must make a similar adjustment if you transfer goods as part of a transfer of a going concern (TOGC). In that case, you should add the purchase value of goods included in the scheme to your sales figure for the period in which the TOGC takes place. This adjustment is separate from the TOGC itself, which is not subject to VAT.


15.8 What must I do if I sell items outside the scheme?

If you sell goods which you had included in your Global Accounting purchase records outside the scheme (for example, you export them), you must adjust your records accordingly.

You do this by subtracting the purchase value of the goods you have sold outside the scheme from your total purchases at the end of the period.

If you do not know the exact purchase value – for example, the goods may have been part of a bulk purchase – you must apportion a value. There is no set way of doing this, but your method must be fair and reasonable and you must be able to demonstrate to us how you determined the value.

You must retain any such evidence and calculations with your records for six years.

15.9 How do I treat stolen or destroyed goods?

The following rule/requirement/paragraph has the force of law


If you lose any goods through breakage, theft or destruction, you must subtract their purchase price from your Global Accounting purchase record.


15.10 How do I treat repairs and restoration costs?

You can reclaim the VAT you are charged on any business overheads, repairs, restoration costs, etc. But you must not add any of these costs to the purchase price of the goods you sell under the scheme.

15.11 How do I treat Global Accounting invoices in foreign currencies?

15.11.1 Purchases

Global Accounting invoices will normally only show a total price for the goods you buy and sell under the scheme.

If the individual purchase price of each item on the invoice is below £500, you need to convert the invoice total to sterling before you enter it into your purchase records.

Because individual items with a purchase value over £500 are not eligible for this scheme, you must deduct the value of any such items from the purchase invoice total.

  • do this by
  • converting the total value in foreign currency (including euro) into sterling, and
  • apportioning this figure so as to exclude the item, or items, with individual purchase values over £500.

You then enter the net purchase amount in sterling in your purchase records.

To convert amounts from foreign currencies you must use one of the methods outlined in Notice 700, The VAT Guide. Whichever method you adopt, you must use the exchange rate which is current at the time the supply is made to you.

15.11.2 Sales

If you issue a Global Accounting sales invoice in a foreign currency, you must show the sterling equivalent of the total value of the goods. Even if you sell more than one item on the same invoice, you need only show the total foreign currency and sterling price on that invoice. You must enter the sterling price in your sales record.

To convert amounts into foreign currencies you must use one of the methods outlined in Notice 700 The VAT Guide. Whichever method you adopt, you must use the exchange rate which is current at the time you make the supply.

16. The Margin Scheme in particular trade sectors: dealers in second-hand horses and ponies

16.1 What do I need to know?

This section deals with the special rules you need to follow if you want to sell second-hand horses and ponies under the Margin Scheme. It doesn’t give you detailed information about how to use the scheme: that information is in sections 2 to 13.

You can only sell horses and ponies which are second-hand under the Margin Scheme.

A horse or pony which has previously been owned by somebody else is second-hand.

A horse or pony which you have bred and are selling for the first time is not second-hand, regardless of how much work or expense you have put in to preparing it for sale.

If VAT is shown separately on the purchase invoice for a horse or pony you have bought, you can’t use the Margin Scheme when you sell the animal on.

Paragraphs 16.2 to 16.6 of this section tell you what records you must keep if you use the special three-part forms supplied by The British Equestrian Trade Association (BETA).

Paragraph 16.7 tells you what records you must keep if you don’t use the special three-part forms.

16.2 What is the three-part form?

The three-part form is a document you can use to account for VAT on the sale of horses and ponies under the Margin Scheme. It is an alternative to keeping the normal Margin Scheme records. The three-part forms come in numbered sets, with a VAT summary sheet at the back. They are sold by:

The British Equestrian Trade Association (BETA)
Stockeld Park
Wetherby
West Yorkshire
LS22 4AW

If you use the three-part form each time you sell a second-hand horse or pony, it will provide you with all the stock and sales records you need to keep for the Margin Scheme. You won’t need to keep a stock book or invoices as described in section 5.

This is how the form creates your records:

Part


becomes


A of the form (white)


your stock record


B of the form (pink)


your copy sales invoice


C of the form (yellow)


your customer’s purchase invoice


You must not alter the serial number on the form.

The following paragraphs tell you how to complete the form. If you don’t complete it correctly, our officers won’t be able to confirm the margin you have achieved and you will have to account for VAT on the full selling price.

As with all your other VAT books and records, you must keep your parts of the form for six years after the date of sale of the animal.

16.3 Buying a second-hand horse or pony, using the three-part form

16.3.1 What if I buy a horse or pony from a private individual?

Step


Action


Details


1


Complete the ‘Description’ and ‘Written Description’ sections of Parts A, B and C of the form.


 

2


Write the unique identifying number of the horse’s passport in the space for ‘Reg. No’.


If the horse or pony doesn’t have a passport, you and a vet must sign Parts A, B and C of the form to certify that the horse or pony is the one described on the form.


If the purchase price of the horse or pony is £500 or less, the vet’s signature is not necessary.


3


Give the form a stock number in numerical sequence


 

4


Complete the Purchase Record section on the reverse of Part A


 

5


Keep all three parts of the form


You will need them when you resell the horse or pony.


When you are completing the ‘Description’ and ‘Written Description’ at Step 1 of the table, you must do this in accordance with the standard laid down by the Royal College of Veterinary Surgeons in the booklet ‘Verification of horses: instructions for veterinary surgeons’. The booklet is published by the Weatherbys Group in conjunction with the RCVS and the British Equine Veterinary Association.

You can buy a copy from:

http://www.weatherbysshop.co.uk/ or:

Weatherbys Bookshop
Sanders Road
Wellingborough
Northants
NN8 4BX

16.3.2 What if I buy from someone who is selling under the scheme?

You should follow the rules in the table above.

If the seller is using the three-part form:

  • they will give you Part C of their form, and you must keep that with your own partially-completed form
  • they will not have to sign the declaration on the reverse of Part A, and
  • if the horse or pony doesn’t have a passport and has a purchase price of £500 or more, the Part C you are given should already have been signed by a vet. You need only copy the details of the vet’s name, practice, etc on to your form – you need not get the vet to sign it.

16.4 Selling a horse or pony, using the three-part form

Step


Action


Details


1


Check that the horse or pony is eligible to be sold under the Margin Scheme.


The animal must


  • be second-hand, and
  • have been bought under eligible circumstances.

If it doesn’t meet these conditions, you must account for VAT on the full selling price.


2


Check that you followed the procedure in paragraph 16.3.1 when you bought the horse or pony.


If you haven’t, you can’t use the three-part form when you sell the horse or pony on under the Margin Scheme.


3


Complete the sales record sections on the reverse of Parts A, B and C.


 

4


Complete the VAT Record section on the reverse of Part A.


Paragraph 3.3 tells you how to work out the VAT due on the sale.


5


Keep Parts A and B.


 

6


Give Part C to the buyer.


 

7


Complete the VAT summary sheet.


 

16.5 Buying a horse or pony at auction, using the three-part form

You should follow the steps in the table at paragraph 16.3.

If the horse or pony is being sold under the scheme, the auctioneer will give you Part C of the seller’s form (you must keep this part with your own partially completed form).

If the horse or pony is sold by a private person, you must get the auctioneer to complete details of his name, address and Lot number on the reverse of Part A of your form.

16.6 Selling a horse or pony at auction, using the three-part form

You should tell the auctioneer that your horse or pony is being sold under the scheme and give the auctioneer Parts B and C of your form, which must already be completed as per paragraph 16.4.

After the sale:

  • the auctioneer will complete the sales details on the reverse of Parts B and C, adding their name and address
  • Part C will be given to the buyer
  • Part B will be returned to you, and
  • you should complete the Sales and VAT Records sections on your Part A.

16.7 What records do I have to keep if I don’t use the three-part form?

If you prefer not to use the three-part form available from BETA, you can maintain the normal records and accounts detailed in sections 4 and 5.

If you purchase a horse or pony from a VAT-registered dealer who uses the three-part form, either direct or at auction, you will be given Part C of the form.

You may use this as your purchase invoice and enter the details in your stock book. You must include sufficient details in your stock book to identify the horse or pony.

If you do decide to keep normal Margin Scheme records, you must include enough information in your stock book to identify the horse or pony, such as:

  • unique identifying passport number
  • colour
  • sex
  • type or breed (for example, cob or thoroughbred)
  • age (if known)
  • height
  • stable name (if known), and
  • distinctive markings.

17.1 The Margin Scheme in particular trade sectors: agents

17.1 What is an agent?

Dealers often sell goods for, or on behalf of, other dealers or private sellers. They may

  • retain a percentage of the selling price, or
  • make a separate charge to the owner.

In these circumstances, the seller is acting as the agent of the person who owns the goods. Both parties will need to follow the rules about agents in this section.

17.2 I am the owner of the goods: how do I calculate my margin?

If:

  • you own eligible goods
  • you are registered for VAT, and
  • an agent sells the goods on your behalf in his own name

you can still account for your own sale under a margin scheme.

Your purchase price will be calculated in the normal way (see paragraph 3.2). Your selling price will depend on the way your agent has accounted for his sale and will be the same as the agent’s purchase price (see paragraphs 17.4 and 17.5 below). Ask the agent if you are not sure what your selling price should be.

17.3 I am an agent: can I use a margin scheme?

Yes. If you are an agent acting in your own name (sometimes known as an undisclosed agent), you can use a margin scheme when you sell eligible goods (see section 2).

Your margin will be equal to the charges you make for your services as an agent. The way you calculate your margin will depend on how you have decided to account for those charges. You can find more information about agents and VAT, and about the options you have for accounting for your charges, in Notice 700 The VAT Guide.

The following paragraphs explain how your choice of accounting method will affect your margin scheme calculations.

17.4 I am an agent and I invoice my charges separately to the seller

If you do this, you have to issue:

  • an invoice for your charges with VAT on it, and
  • another, separate invoice for the goods you have sold under the margin scheme.

You calculate your margin on the sale of the goods like this:


Purchase price


The total price you receive for the goods, not including any charges made to the buyer.


(If the seller is using a margin scheme for their sale of the goods to you, this figure will also be their selling price for margin scheme purposes.)


Selling price


The total price you receive for the goods including any incidental expenses and commission you charge to the buyer.


(If you charge the buyer for any optional services which are not directly linked to the goods, you should invoice for these outside the margin scheme.)


Margin


The difference between the purchase price and the selling price.


VAT due


Apply the VAT fraction to the margin (see paragraph 3.3).


17.4.1 How does using a margin scheme help me?

If you


then


  • use a margin scheme, and
  • invoice your charges separately to the seller

you will pay VAT on:


  • the invoice for your charges to the seller, and
  • your margin, which will be equal to any charges you make to the buyer

but


  • you won’t pay any VAT on the goods.
  • don’t use a margin scheme, and
  • invoice your charges separately to the seller

you will pay VAT on:


  • your charges to both the seller and the buyer, and
  • the goods.

17.5 I am an agent and I include my charges to the seller in the sale of the goods

If you include your charges to the seller in the sale of the goods, you calculate your margin like this:


Purchase price


The total sum you receive for the transaction less your charges to the seller.


(If the seller is using a margin scheme for their sale of the goods to you, this figure will also be their selling price for margin scheme purposes.)


Selling price


The total sum you receive for the transaction inclusive of any incidental charges you make to the buyer.


(If you charge the buyer for any optional services which are not directly linked to the goods, you should invoice for these outside the margin scheme.)


Margin


The difference between the purchase price and the selling price.


VAT due


Apply the VAT fraction to the margin (see paragraph 3.3).


This method mirrors the method used by auctioneers to calculate their purchase and selling prices under the Auctioneers’ Scheme (see Notice 718/2 The Auctioneers’ Scheme).

17.5.1 How does using a margin scheme help me?

If you


then


  • use a margin scheme, and
  • include your charges to the seller in the sale of the goods

you will pay VAT on:


  • your margin, which will be equal to the charges you make to the buyer and the seller

but


  • you won’t pay any VAT on the goods.
  • don’t use a margin scheme, and
  • include your charges to the seller in the sale of the goods

you will pay VAT on:


  • your charges to both the seller and the buyer, and
  • the goods.

17.6 What if I sell zero-rated goods?

If


then


you are an agent acting in your own name and:


  • you use a margin scheme, and
  • you invoice your charges separately to the seller

your charges will fall outside the margin scheme and will be standard-rated for VAT, regardless of the liability of the goods.


you are an agent acting in your own name and:


  • you use a margin scheme, and
  • you include your charges to the seller in the sale of the goods

the VAT liability of your services will follow that of the goods.


This means that if you sell zero-rated goods, for example, antique books, your margin will also be zero-rated.


In the VAT due column of your stock record, you should insert ‘nil’.


17.7 What records do I need to keep?

If you issue invoices in your own name for the margin scheme sales you make as an agent, you must keep the records described in section 5.

If you sell goods on behalf of someone who:

  • is registered for VAT, and
  • who is using a margin scheme themselves

you must make sure they give you an invoice which includes all the details described at paragraph 5.3. That person’s selling price should follow the rules at 17.4 and 17.5 above.

If you sell goods on behalf of someone who is not registered for VAT, you must make out the invoice yourself.

18. The Margin Scheme in particular trade sectors: pawnbrokers

18.1 Can I use a margin scheme when I sell unredeemed pawns?

Yes, in specific circumstances.

If


Then


  • the loan is for £75 or less, and
  • you adopt the statutory six month redemption period

ownership of the pledge passes to you if it is not redeemed within that time limit.


If you dispose of the goods to a third party, there will be VAT on the sale.


  • the goods are eligible, and
  • you can meet all the other conditions of the scheme

you may account for the sale under the Margin Scheme or Global Accounting.


18.2 What is my purchase price for the margin scheme?

If you use a margin scheme for goods described in paragraph 18.1, your purchase price will be the amount which would be needed to redeem the pawn, that is:

  • the amount of the loan plus
  • the initial six months’ interest payable minus
  • any payments received from the pledgor.

You must not add any interest relating to the three month period of grace or other items such as

  • cleaning
  • repair charges
  • storage and other overhead expenses

to the purchase price.

18.3 What should I use as my purchase invoice?

You may use the ‘Credit Agreement and Pawn Receipt’ as your purchase invoice, if you wish, provided:

  • the contract number is entered in your pledge stock record and cross refers to the agreement, and
  • a copy of the interest calculations and total purchase value for margin scheme purposes is attached, if it differs from the amount shown on the receipt.

18.4 Under what circumstances can I not use a margin scheme?

18.4.1 Pledges restored during the period of grace

If you restore the pledge to the pledgor during the period of grace, there will be no VAT on the supply provided you:

  • record the redemption in your pledge stock records, and
  • stamp the ‘Credit Agreement and Pawn Receipt’ with the date of redemption and keep it for inspection by HMRC.

You cannot account for the restoration of the pledge under the Margin Scheme or Global Accounting, so you will need to adjust your purchase record if you have already entered the items in your scheme records.

18.4.2 Pledges where ownership of the goods does not pass to you

If


then


  • the loan exceeds £75, or
  • the redemption period has been agreed for a time longer than the usual six months

ownership of the pledge does not pass to you at the end of the redemption period.


There will be no VAT on the sale of the pledged goods if you dispose of them to a third party, so you cannot use a margin scheme when you sell them.


You may sell these goods at auction on the pledgor’s behalf, and the auctioneer can use the Auctioneers’ Scheme provided that:

  • the pledgor is not VAT-registered
  • the goods are eligible, and
  • the conditions are met.

However, it is important to be aware that, if

  • the pledgor is registered for VAT, and
  • the pledge is something he acquired in the course of business

there will be VAT on the sale. You must follow the procedures for accounting for VAT on goods sold in satisfaction of a debt described in Notice 700 The VAT Guide.

19. The Margin Scheme in particular trade sectors: dealers in second-hand caravans and houseboats

19.1 Can I use the Margin Scheme?

It depends on the VAT liability of the caravan or houseboat you are selling.

If


then


you sell a second-hand caravan or houseboat which is zero-rated


You may use the Margin Scheme for the sale of any standard-rated fixtures or removable contents.


you sell


  • second-hand boats which are not houseboats, or
  • second-hand caravans which do not meet the criteria for zero-rating

you may use the Margin Scheme to account for VAT on the sale.


You can find:

  • information about the VAT liability of caravans and houseboats
  • guidance on how to calculate a value for standard-rated fixtures or contents, and
  • guidance on how to calculate the margin

in Notice 701/20 Caravans and houseboats.

20. Definitions

20.1 Definitions of eligible goods

For the purposes of the Schemes in this notice, the words and phrases below have the following meaning:

Second-hand goods

Tangible moveable property that is suitable for further use as it is or after repair, other than works of art, collectors’ items or antiques and other than precious metals and precious stones.

Works of art

1. 'Work of art' means, subject to subsections 2 and 3 below

(a) any mounted or unmounted painting, drawing, collage, decorative plaque or similar picture that was executed by hand

(b) any original engraving, lithograph or other print which:

      (i) was produced from one or more plates executed by hand by an individual who executed them without using any mechanical or photomechanical process, and

      (ii) either is the only one produced from the plate or plates or is comprised in a limited edition

(c) any original sculpture or statuary, in any material

(d) any sculpture cast which:

      (i) was produced by or under the supervision of the individual who made the mould or became entitled to it by succession on the death of that individual, and

      (ii) either is the only cast produced from the mould or is comprised in a limited edition

(e) any tapestry or other hanging which:

      (i) was made by hand from an original design, and

      (ii) either is the only one made from the design or is comprised in a limited edition

(f) any ceramic executed by an individual and signed by him

(g) any enamel on copper which:

      (i) was executed by hand

      (ii) is signed either by the person who executed it or by someone on behalf of the studio where it was executed

      (iii) either is the only one made from the design in question or is comprised in a limited edition, and

      (iv) is not comprised in an article of jewellery or an article of a kind produced by goldsmiths or silversmiths

(h) any mounted or unmounted photograph which:

      (i) was printed by or under the supervision of the photographer

      (ii) is signed by him, and

      (iii) either is the only print made from the exposure in question or is comprised in a limited edition.

2. The following do not fall within the definition of works of art

(a) any technical drawing, map or plan

(b) any picture comprised in a manufactured article that has been hand-decorated, or

(c) anything in the nature of scenery, including a backcloth.

3. An item comprised in a limited edition shall be taken to be so comprised for the purposes of subsection 1(d) to (h) above only if

(a) in the case of sculpture casts:

      (i) the edition is limited so that the number produced from the same mould does not exceed eight, or

      (ii) the edition comprises a limited edition of nine or more casts made before 1 January 1989 which the Commissioners have directed should be treated, in the exceptional circumstances of the case, as a limited edition for the purposes of subsection 1(d) above

(b) in the case of tapestries and hangings, the edition is limited so that the number produced from the same design does not exceed eight

(c) in the case of enamels on copper:

      (i) the edition is limited so that the number produced from the same design does not exceed eight, and

      (ii) each of the enamels in the edition is numbered and is signed as mentioned in subsection 1(g)(ii) above,

(d) in the case of photographs –

      (i) the edition is limited so that the number produced from the same exposure does not exceed thirty, and

      (ii) each of the prints in the edition is numbered and is signed as mentioned in subsection 1(h)(ii) above.

Collectors’ items

Collections and collectors’ pieces of zoological, botanical, mineralogical, anatomical, historical, archaeological, palaeontological, ethnographic, numismatic or philatelic interest.

A collector’s piece is of philatelic interest if:

(a) it is a postage or revenue stamp, a postmark, a first-day cover or an item of pre-stamped stationery, and

(b) it is franked or (if unfranked) it is not legal tender and is not intended for use as such.

Note: unfranked stamps which are valid for postage are not collectors’ items and cannot be included in the Margin Schemes: that is, stamps on which the value is:

  • in decimal currency, or
  • currently valid for 1st or 2nd class postage, or
  • £1, or a multiple of £1, of the present monarch’s reign.

Antiques

Antiques means objects other than works of art or collectors’ items which are more than 100 years old.

20.2 Definitions of ineligible goods

Precious metals

Goods (including coins) consisting in precious metals or any supply of goods containing precious metals where the consideration for the supply (excluding any VAT) is, or is equivalent to an amount which does not exceed the open market value of the metal contained in the goods.

For gold coins sold at or below the open market value (that is the daily ‘fix’ price) the special accounting and payment system for gold transactions applies. Further details can be found in Notice 701/21 Gold.

Investment gold

Gold coins which meet the definition of investment gold are not considered of numismatic interest and are not eligible for the margin schemes. Further details about investment gold can be found in Notice 701/21A Investment Gold Coins.

Precious stones

Precious stones of any age which are not mounted, set or strung. For the purposes of the margin schemes, precious stones are diamonds, rubies, sapphires and emeralds.

Your rights and obligations

Your Charter explains what you can expect from us and what we can expect from you. For more information go to Your Charter.

Do you have any comments or suggestions?

If you have any comments or suggestions to make about this notice, please write to:

VATAPPS Compliance Team
HM Revenue & Customs
1st Floor North West
Queens Dock
Liverpool
L74 4AA

Please note this address is not for general enquiries.

For your general enquiries please phone our Helpline 0845 010 9000.

Putting things right

If you are not satisfied with our service, please let the person dealing with your affairs know what is wrong. We will work as quickly as possible to put things right and settle your complaint. If you are still unhappy, ask for your complaint to be referred to the Complaints Manager.

For more information about our complaints procedures go to www.hmrc.gov.uk and under quick links select Complaints.

How we use your information

HMRC is a Data Controller under the Data Protection Act 1998. We hold information for the purposes specified in our notification to the Information Commissioner, including the assessment and collection of tax and duties, the payment of benefits and the prevention and detection of crime, and may use this information for any of them.

We may get information about you from others, or we may give information to them. If we do, it will only be as the law permits to:

  • check the accuracy of information
  • prevent or detect crime
  • protect public funds.

We may check information we receive about you with what is already in our records. This can include information provided by you, as well as by others, such as other government departments or agencies and overseas tax and customs authorities. We will not give information to anyone outside HMRC unless the law permits us to do so. For more information go to www.hmrc.gov.uk and look for Data Protection Act within the Search facility.

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$START-DATA$ title=The VAT Margin Scheme and global accounting^ summary=VAT Notice 718: This notice explains when, how and why to use the Margin Scheme or global accounting if you sell second-hand goods, works of art, antiques or collectors items.^ doctype=PublicNotice^ date=13-May-2013^ author=lk125388^ $END-DATA$
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