Questions and Answers
Margin Scheme
I am a 2nd hand car dealer who is now approaching the threshold for VAT registration. A friend of mine who also deals in 2nd hand goods, albeit art and antiques has informed me that there may be a VAT scheme which I can use to minimise my liability and administration costs. Could you please advise me if such a scheme exists and explain the mechanics behind it?
The VAT margin scheme works by enabling traders who deal in 2nd hand goods to account for VAT only on the difference between the price paid for an item and the price at which you sell it - the margin. You will not be able to reclaim any input VAT when the goods are purchased and will only pay over to HMRC VAT on the difference between the purchase and selling price. You won't pay any VAT if you don't make a profit on a deal and if you use the margin scheme, you can still use normal VAT accounting for other items that you sell. You can also reclaim VAT on business expenses such as overheads.
Your purchase price is everything which you had to pay for the vehicle. You must not include any cost to you of bringing the vehicle to sale such as repairs, refurbishment, accessories or your business overheads.
Your selling price is everything which you are to receive for the vehicle, whether from the buyer or a third party. It includes incidental expenses such as an MOT and accessories fitted prior to the sale.
You can only use the margin scheme for a vehicle that has at some point actually been driven on the road for business or pleasure - HM Revenue & Customs (HMRC) doesn't consider a vehicle to be second-hand just because it's been registered, has delivery mileage and has been bought and re-sold.
You should be aware that it is still your gross sales, rather than just the total of the 'margins' which makes up your VAT turnover for registration purposes.
Date published 5 Dec 2012
This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.Choose the right accounting firm for you
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