What is the VAT margin scheme and which goods are eligible?
The VAT margin scheme allows dealers of second-hand goods, works of art, collectors' items, and antiques to apply VAT only on their profit margin (the difference between purchase price and selling price) rather than on the full sale price. This prevents double VAT taxation on goods that were already taxed when first sold. The scheme is optional and requires specific record-keeping; dealers must decide whether to use the scheme for each eligible transaction.
What records must be kept under the VAT margin scheme?
Margin scheme record-keeping requirements: (1) Stock book: separate record for each eligible item purchased and sold, showing purchase price, purchase date, sale price, and sale date; (2) Purchase invoices: retained for each acquisition including from private individuals (who cannot issue VAT invoices); (3) Margin calculation: documented for each transaction; (4) Invoice notation: margin scheme sales invoices must not separately identify VAT; must state 'Margin scheme - Second-hand goods'; (5) Segregation: margin scheme stock must be kept separate from standard-rated stock in records.
Frequently Asked Questions
- Can margin scheme dealers also use the normal VAT rules on the same stock?
- Dealers can choose whether to use the margin scheme or standard VAT rules on each eligible item. Dealers may opt for standard VAT when they can charge VAT and the buyer is VAT-registered (allowing input tax recovery by the buyer). For sales to private individuals (who cannot recover VAT), the margin scheme is typically preferred as VAT is only charged on the margin, making the selling price more competitive. Dealers cannot apply both schemes to the same item.
- Does the margin scheme apply to used cars?
- Yes, used cars (and other used vehicles) are eligible for the VAT margin scheme when purchased from private individuals or from businesses that could not recover VAT on their original purchase. Cars purchased from VAT-registered businesses with a full VAT invoice do not qualify for the margin scheme; standard VAT applies. Dealers must verify the history of each vehicle to determine whether margin scheme treatment is eligible.