All About the VAT Margin Scheme
Discover the ins and outs of the VAT Margin Scheme. This article provides a concise overview of how this scheme works, its benefits, and the eligibility criteria. Whether you're a business owner or simply curious about VAT regulations, delve into the details of this important aspect of taxation.
What is the VAT Margin Scheme?
A VAT Margin Scheme comes into play whenever a business buys certain second-hand items. Under the VAT Margin Scheme, a business is eligible to pay a reduced amount of 16.67 per cent (one-sixth) on the difference between what the item was bought for and what the business sold it for. This is opposed to the usual rate of VAT which is set at 20 per cent.
For example, a business bought an antique statue for £2,500 and then sold it for £3,500. The difference is £1000. 16.67 per cent of £1000 is £166.70. This is then the VAT the business must pay HMRC.
Who is eligible for the VAT Margin Scheme?
To be eligible to operate using a VAT Margin Scheme, a business must be registered for VAT and deal in any of the following:
- Works of art
- Collectors’ items
- Second-hand goods
A VAT Margin Scheme cannot be applied to items that had VAT attached to them, precious metals and stones and gold that is bought for investment purposes.
There are different rules applicable to businesses that sell:
- Second-hand vehicles
- Horses and ponies
- Caravans and houseboats
- Pawned goods
- High volume, low-price goods
Auctioneers, agents and businesses that buy and sell goods in the European Union and Northern Ireland must also adhere to different rules. For more details, visit www.gov.uk.
There is no requirement to inform HMRC that you wish to join the VAT Margin Scheme just like you do not need to inform HMRC to join schemes such as the VAT Cash Accounting Scheme or the VAT Retail Scheme. HMRC must be notified, however, to join schemes such as the Flat Rate VAT Scheme or the VAT Annual Accounting Scheme. You will still need to submit a tax return quarterly or once every 12 months and make any required VAT payments to HMRC.
What records do I need to keep for the VAT Margin Scheme?
A business that uses the VAT Margin Scheme is required to keep the normal VAT records, submit returns in the required period and must also maintain a stockbook with individual details of each item sold VAT Margin Scheme. Business owners should also keep records of all purchase and sales invoices for these items.
It can be a struggle to keep VAT paperwork up to date. This is especially true for any business owner that uses the VAT Margin Scheme. However, there is help available. Using Mooncard can streamline the VAT accounting for your business. Book a no-obligation, free Mooncard demonstration online today!