Accountants guide for Vat Margin Scheme
VAT Margin schemes are calculated by taxing the difference between the purchase price of an item and the price at which you later sell it for. Note that it is never charged on the full selling price. For instance a VAT 16% will be charged on the difference between the two prices.Get a Quote Now
You can decide on a margin scheme if you are selling:
- Collector’s items
- Second hand goods
- Works of art
You cannot use a margin scheme if you are selling:
- Precious stones
- Investment gold
- Precious metals
You can shift to a margin scheme at any time as long as you are keeping accurate records that are then reported on the VAT return. There is no need to register for the scheme and you will not be required to inform the tax authorities unless requested to do so.
Standard VAT and Margin Schemes
If some of the items you deal in do not qualify for a margin scheme, you will be required to charge and pay VAT for those items in the standard way.
The following cannot be included in any margin scheme calculations:
- Accessories or parts
- Business expenses
- Business overheads
Instead you can claim these on the standard VAT returns
How to Calculate the Margin
Using the margin scheme, you are only required to declare VAT if you sell goods for a profit. You do not have to account for VAT if you make losses.
To calculate VAT on each sale follow the following example:
|(a) Purchase price||£15000|
|(b) Selling price||£20000|
|(c) Gross Margin (b – a)||£5000|
|(d) VAT payable (c x 1/6)||£833.33|
The vat fraction makes it possible to know the exact amount of VAT payable for any positive margins.
A standard rate of 20% VAT is 1/6. Once you have calculated the gross margin, it is then a matter of multiplying the answer by 1 and dividing it by 6.
Guidance for Stock Books
Stock Books need to be updated and should have all the pertinent information as set out in the table below. This will also include all vehicles purchased under the margin scheme for resale. If you wish you may provide more information that may be useful for your contractor accounting needs. For instance reporting vehicle:
|Purchase details||Sales Details|
|Date of procurement||Date of sale|
|Margin on sale (sales price less purchase price)|
|Purchase invoice number||Sales invoice number|
|Stock number in numerical sequence|
|Vehicle registration number|
|Vehicle Description (for example, make and model)|
|Buying price||Sales price, or way of disposal|
|Name of vendor||Name of purchaser|
|VAT due (margin x VAT fraction – 1/6)|
You have to include the margin scheme calculations in the stock book under the suitable headings. If the price you bought the goods at happens to be greater than or the same as what you sold them for, you will not have to pay any VAT. In such an instance, the stock book entry should indicate ‘Nil’.
You are not allowed to offset any losses on goods sold against VAT owed on vehicles that have been moved on for positive margins.
How to Fill the VAT Return
At the end of each tax period, you will be required to file your VAT returns. The following are some of the specific rules to be adhered to when selling or buying vehicle during the tax period under the Margin Scheme:
- Box 1, Insert the output tax due on all items on the scheme sold within the period.
- Box 6, Insert the price sold on eligible items sold less the VAT due entered in Box 1
- Box 7, Insert the gross total purchase price of all items bought
- Boxes 8 and 9 of your VAT return are not required to be filled in.
Requirements for Record Keeping
When using the VAT margin scheme you will need to maintain the standard VAT records
You will also be required to maintain:
- Copies of sales and purchase invoices for all items
- A stock book that tracks all individual items that you are selling under the margin scheme
You will also be required to maintain a 6 year record of VAT. The records need to be kept until the item that is intended to be sold under the margin scheme is sold even if the item was purchased more than six years ago.
Contact GM Professional accountants if you need assistance in the vat margin scheme. We have specialists that can assist you in the cloud based bookkeeping systems such Xero cloud.