VAT Margin Schemes for Other Goods

Introduction

VAT margin schemes allow businesses dealing in certain second-hand goods to pay VAT only on their profit margin rather than the full selling price. Special rules apply depending on what you're selling—from horses and ponies to houseboats, caravans, antiques sold at auction, and bulk low-value items under the global accounting scheme.

What are VAT margin schemes?

A VAT margin scheme lets you account for VAT on the difference between what you paid for eligible goods and what you sold them for, rather than on the full selling price. This applies to specific categories of second-hand goods where you couldn't reclaim VAT when you bought them.

The basic calculation is the same across most margin schemes: subtract your purchase price from your selling price to get the gross margin, then multiply by 1/6 to find the VAT due.

Horses and ponies

When you can use this scheme

You can use a margin scheme for second-hand horses and ponies—meaning they've been previously owned by someone else. You cannot use the scheme if you bred the horse yourself (it's not classed as second-hand) or if VAT was shown separately on your purchase invoice.

Working out the margin

The purchase price includes everything you paid for the horse or pony. The selling price is everything you receive, whether from the buyer or a third party, including incidental expenses directly linked to the sale.

If you use an agent, how they charge (either retaining a percentage or making a separate charge) will affect your final selling price calculation.

BETA forms for record-keeping

You have two options for keeping records. You can either maintain normal margin scheme records or use the British Equestrian Trade Association (BETA) form, which combines your stock record, sales invoice, and customer's purchase invoice in one document.

The BETA form has three parts: part A (your stock record), part B (your copy sales invoice), and part C (your customer's purchase invoice). You must not alter the serial number on the form. If you don't complete it correctly, HMRC won't be able to confirm your margin and you'll have to account for VAT on the full selling price.

Buying with the BETA form

When buying, you must complete the description sections following Royal College of Veterinary Surgeons (RCVS) standards. Write the horse's unique passport number in the 'reg no' space. If there's no passport, you and a vet must sign all parts to certify the horse matches the description—unless the purchase price is £500 or less, in which case you don't need the vet's signature.

When buying from someone using a margin scheme or at auction, the seller or auctioneer will give you part C of their form to keep with your own form.

Selling with the BETA form

Before selling, check the horse is eligible and that you followed the correct steps when buying. Complete the sales record sections on the reverse of all three parts and the VAT record section on part A. Keep parts A and B, and give part C to the buyer. You must then complete the VAT summary sheet.

If you're not using BETA forms, your stockbook must include enough detail to identify the horse: passport number, colour, sex, type or breed, age, height, stable name (if known), and distinctive markings.

Houseboats and caravans

When you can use this scheme

You can use a margin scheme when selling second-hand boats, houseboats and caravans that don't meet the criteria for zero rating. You can also use it for standard-rated fixtures or removable contents from a second-hand caravan or houseboat that is zero-rated.

If you buy and sell used caravans or houseboats, you can use a margin scheme to calculate VAT on the difference between your buying and selling price for removable contents, rather than accounting for VAT on their full value. If your buying price equals or exceeds your selling price, there's no margin and no VAT is payable.

Calculating the margin

The purchase price is everything you pay for the goods. The selling price is everything you receive, including incidental expenses directly linked to the sale and accessories fitted before the sale.

Record-keeping

You must keep normal VAT records plus a stockbook tracking each item sold under the scheme individually, and copies of all purchase and sales invoices.

If you're selling standard-rated fixtures or removable content, you can calculate either standard appointment of values or actual values. Any other method you use must produce a fair and reasonable result.

Unredeemed pawns (for pawnbrokers)

Eligibility conditions

Pawnbrokers can use a margin scheme for unredeemed pawns only if the goods are eligible, the loan is for £75 or less, and the loan period was at least 6 months.

Special purchase price rules

Your purchase price is the loan amount plus the initial 6 months' interest payable, minus any payments received from your customer. You must not add interest for the 3-month grace period or costs for cleaning, repairs, storage, or other overheads.

Records

You can keep the credit agreement or pawn receipt as your purchase invoice, provided the contract number is entered in your pledge stock record and cross-refers to the agreement. If the total purchase value for margin scheme purposes differs from the amount on the receipt, attach a copy of the interest calculations.

Auctioneers' margin scheme

When auctioneers can use this scheme

If you're an auctioneer, you can use this scheme to account for VAT on the margin equal to the value of your services, not the hammer price of the goods. The goods must be eligible, and you must check with the seller before the auction.

The seller must be either not registered for VAT, a VAT-registered person using the standard margin scheme or global accounting scheme, an insurance company selling eligible goods obtained through a claim (sold in the same state), or a finance house selling repossessed eligible goods (sold in the same state).

How it works

For auctioneers, the purchase price is the hammer price less any commission charges you make to the seller. Don't include other services you supply to the seller.

The selling price is the hammer price plus any charges for services you make to the buyer, such as buyer's premium, commission, or incidental expenses like packing, transport, and insurance. Don't include services that are a separate supply (like providing catalogue illustrations) or indemnity fees where an approved insurance company provides the policy.

Invoicing requirements

You must issue separate invoices to buyer and seller. Both should include your name, address and VAT registration number, the other party's name and address, a means of cross-referencing to your stockbook, invoice number, transaction date, item description, hammer price, and any service charges (without showing VAT separately).

The buyer's invoice must show the amount due from the buyer (this becomes your selling price and the buyer's purchase price if they're VAT-registered and using a margin scheme).

The seller's invoice must show the amount due to the seller (this becomes your purchase price and the seller's sale price if they're VAT-registered and using a margin scheme).

Time of supply

When acting in your own name, the tax point for both supplies is the earlier of handing over the goods to the buyer or getting payment.

EU sales

Sales from Great Britain to EU member states are exports. Sales under the auctioneers' scheme within Northern Ireland and the EU are treated the same as UK sales and liable to UK VAT.

Global accounting scheme

What is global accounting?

The global accounting scheme is a simplified margin scheme. Instead of calculating the margin on individual items, you account for VAT on the margin between your total eligible purchases and total eligible sales in each tax period.

When you can use it

You can use this scheme if you buy and sell bulk volume, low-value goods and cannot maintain the records required for a standard margin scheme. You can also use it if you split collections and sell items separately or combine items, or if you buy an eligible item for £500 or more made up of components valued under £500 that you sell individually.

When you cannot use it

You cannot use global accounting if you buy eligible items and make them into something ineligible, if you have VAT shown separately on the invoice, or if you sell aircraft, boats and outboard motors, caravans and motor caravans, horses and ponies, or motor vehicles (except those broken up for scrap).

Starting the scheme

When you start, you can include eligible stock on hand. Value it using the purchase value from original invoices, or if you're newly registered or don't have invoices, use another fair and reasonable method. Goods bought with VAT shown separately aren't eligible.

Calculating VAT

Calculate VAT at the end of each tax period. Add up your total eligible purchases and sales, subtract purchases from sales to get the gross margin, then multiply by 1/6.

When working out total purchases in your first period, include the value of eligible stock you brought into the scheme. In some periods, purchases may exceed sales, creating a negative margin with no VAT due. You must carry this negative margin forward to the next period and add it to your purchases—you cannot offset it against other figures.

Scrap motor vehicles

You can use global accounting for second-hand motor vehicles if you break them up and sell them as scrap. If you've already entered a vehicle in your second-hand vehicle stockbook, close that entry and transfer details to your purchase records.

You can use the scheme even if you bought a scrap vehicle for over £500, but not if individual components are valued over £500 or you were charged VAT separately when buying.

Bulk purchases and collections

You can use the scheme for bulk purchases and collections where the combined purchase price exceeds £500, but not if an individual item has a purchase value over £500. Such items must be sold under normal VAT rules or a standard margin scheme.

Invoicing for global accounting

Sales invoices to other VAT-registered dealers must include your name, address and VAT registration number, the buyer's name and address, invoice number, date of sale, description of goods (specific enough for HMRC to verify eligibility—'assorted goods' isn't acceptable), total price (without showing VAT separately), and the statement 'global accounting invoice'.

Keep purchase and sales summaries showing invoice number (if shown), date, description of goods, and total price.

Foreign currencies

If the individual purchase price of each item on an invoice is below £500, convert the invoice total to sterling before entering it. Items over £500 aren't eligible—deduct their value from the invoice total first, then convert.

For sales invoices in foreign currency, show the sterling equivalent of the total value. If selling multiple items on one invoice, you only need to show the total foreign currency and sterling price.

Records for global accounting

Keep records of purchases and sales showing how you worked out VAT due. Records must be up to date, clearly distinguishable from other records, and kept for 6 years. If HMRC cannot check your declared margins, VAT will be due on the full selling price.

If you lose goods through breakage, theft, or destruction, subtract their purchase price from your global accounting purchase record.

VAT returns

You must show all goods you buy or sell using any margin scheme on your VAT return.

Sources

• Selling horses and ponies if you use a VAT margin scheme
• Selling houseboats and caravans if you use a VAT margin scheme
• Selling unredeemed pawns if you use a VAT margin scheme
• Using the auctioneers' VAT margin scheme
• Using the global accounting VAT margin scheme

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.