Buying goods as a transfer of going concern or assignments of rights using the VAT margin scheme
How to use the margin scheme to account for VAT on transfers of going concerns and assignments of rights.
There is information you need to know if you obtain goods under a transfer of a going concern or assignment of rights and use the VAT margin scheme.
Transfers of going concerns and assignments of rights
If you obtain goods under a transfer of a going concern (TOGC) or assignment of rights, no VAT will be chargeable on the transfer or assignment. But this does not necessarily mean that you’ll be able to sell the goods under a margin scheme.
You’ll only be able to use the scheme if the transferor or assignor was entitled to use the margin scheme.
Records under a transfer of a going concern
The seller usually retains the records but must provide any information the buyer needs to comply with their duties under the VAT act.
The buyer may apply to HMRC for permission to take on the seller’s VAT number. If so, the seller must transfer the records to the buyer. If the seller needs to retain the records, they may apply to HMRC for permission to do so.
The records will include the purchase invoices for stock on hand. You’ll be able to tell from these invoices whether or not the goods are eligible to be sold under the scheme.
If the transferor of the goods bought them on margin scheme invoices, you’ll be able to sell them under the scheme.
If the transferor’s invoices show VAT the goods are not eligible for the scheme and you’ll have to account for VAT on the full selling price when you sell them.
When you buy a business as a transfer of a going concern you should:
- check if the seller is using the VAT margin scheme
- make sure that you have all the records you need if you intend to sell eligible goods on under a margin scheme
The margin scheme purchase price
Your purchase price will be the price paid when the eligible item was bought by the person who intended to sell it using a margin scheme.
You’ll be able to identify the original purchase price from the purchase invoices which will form part of the business records.
You may have obtained goods under a transfer of a going concern from a bank or financial institution. That body may have obtained those goods when they were assigned the rights in either a:
- hire purchase
- conditional sale agreement
If so, the records that are usually kept in relation to these transactions should provide the information you need.
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.