So what is a VAT margin scheme?
It means that instead of charging VAT on the total selling price of goods, you only charge VAT on your margin; the difference between what you bought and then sold the goods for.
When You Can Use a Margin Scheme
You can use a margin scheme if you have a VAT-registered business that buys and sells the following things:
- Antiques (items that are more than 100 years old).
- Collectors’ items.
- Second-hand goods (which are in good enough condition to still be used, or could use if they were repaired).
- Works of art.
You cannot use a margin scheme for:
- items already bought that you’ve been charged VAT for.
- gold bought as an investment.
- precious stones and metals.
You must pay, and charge, standard VAT if some of the items you buy and sell are not covered by a margin scheme.
You can still use the annual accounting scheme which reduces the number of VAT returns small businesses have to provide.
The Benefits of Using a Margin Scheme
Some reasons why it can be worth using this type of scheme are:
- You only have to calculate VAT on your margin.
- When you sell something for less than you bought it for, you won’t have to account for VAT on the sale.
- you can use it alongside standard VAT accounting.
How to Use a Margin Scheme
There is no need to register to use a margin scheme. You can start using one whenever you want.
All you have to do is keep the right records, and make sure that you report things that you bought or sold under the scheme, on your VAT return.
Record keeping is extremely important while using a margin scheme. You should store safely:
- All the VAT records that you normally would.
- A stock book that lists all the items you have sold (that are covered by the scheme) separately.
- Copies of both the purchase and sales invoices for all goods.
Your stockbroker needs to list specific information for each of your purchases and sales.
This includes details like the:
- Date you bought each item.
- Invoice number.
- Name of the person who sold it to you.
- Price you sold it for.
There are specific invoice requirements you need to meet, if you want to use the margin scheme.
When you are buying items that you’re going to sell under the scheme, invoices need to clearly show:
- The prices.
- Descriptions of the items you bought.
- ·The name and address of the person who sold them to you.
If you’re selling goods under the scheme, your invoice needs to include:
- The price.
- A description of the item you sold.
- The item’s unique stockbroke number.
Remember, if you are no longer trading you need to:
- Let HM Revenue & Customs know within 30 days of ceasing trading.
- Deregister for VAT.
You can also deregister if your taxable supplies are below the deregistration limit, which at present, is less than £81,000.