Buying and selling goods at auction using the VAT margin scheme
How to account for VAT using the VAT margin scheme when buying or selling second-hand goods at auctions.
There are special rules to follow if you buy and sell goods that you buy and sell at auction using the VAT margin scheme.
Your purchase and selling price may be affected by other costs, such as buyer’s premium or commission charges.
Using a VAT margin scheme for eligible goods bought at auction
To sell goods you have bought at auction, you can use either:
- the VAT margin scheme
- the global accounting scheme (if you’re buying high-volume, low-value goods)
You must check whether the goods are eligible for sale under the scheme.
You should be able to find this out from the auctioneer’s sales catalogue.
If the auctioneer charges VAT separately on the hammer price of an item you buy, you’ll not be able to use a margin scheme or global accounting scheme for your onward sale.
Work out the purchase price of eligible goods bought at auction
Your purchase price will be the hammer price of the item plus charges for services.
This will be your purchase price for the purposes of the VAT margin scheme or global accounting scheme. This is the amount that you must show in your stock book. It should be clearly identified on the invoice you get from the auctioneer.
The invoice you get from the auctioneer will list, for each lot you have bought:
- the hammer price of the goods
- any charges for services (for example, buyer’s premium)
These charges must not show VAT separately.
If the auctioneer bills you for any other services, and charges VAT on them separately, you can reclaim the VAT, subject to the normal VAT rules. You must not add those charges to your own margin scheme purchase price. To avoid confusion, you may want to ask the auctioneer to provide you with a separate invoice for such charges.
If you are in any doubt about what your margin scheme purchase price should be, you should check with the auctioneer.
Indemnity fees
When you buy goods at auction, you may be charged an indemnity fee. This fee ensures that you receive compensation if the goods you buy are later found to have been stolen or to have finance outstanding on them.
You must not include the indemnity fee in your purchase price for margin scheme purposes.
Work out the selling price of eligible goods sold at auction
Before the sale is due to take place, you should discuss with the auctioneer whether you want the sale to be treated under either the:
- auctioneers’ scheme
- VAT margin scheme
Auctioneers’ scheme
If the auctioneer uses the auctioneers’ scheme, your margin scheme selling price will be the hammer price less the commission charge.
You’ll receive an invoice from the auctioneer that will include the:
- the hammer price of the goods
- the auctioneer’s commission charges
- the net amount payable to you
None of the amounts should show VAT separately.
Any other charges for services must be invoiced separately with VAT charged as normal. You can reclaim the VAT on these invoices under the normal VAT rules, but you must not deduct the charges from your margin scheme selling price.
VAT margin scheme
If the auctioneer uses the VAT margin scheme, your selling price will be the hammer price.
You’ll receive an invoice from the auctioneer that will include the hammer price of the goods.
None of the amounts should show VAT separately.
The auctioneer’s commission and any other charges must be invoiced separately. You can reclaim the VAT on these invoices under the normal VAT rules, but you must not deduct the charges from your margin scheme selling price.
Your selling price for margin scheme purposes should be easy to identify from the invoice you receive. You should check with the auctioneer if you are in any doubt.
How to work out the margin and VAT due
You should work out the margin and VAT due following the normal margin scheme calculation.
Records to keep
You should keep the normal VAT margin scheme records.
VAT returns
You must show any goods you buy or sell using a margin scheme on your VAT return.