Buying or selling joint purchases and shares using the VAT margin scheme
How to use the margin scheme to account for VAT on joint purchases and shares.
There is information you need to know if you make joint purchases or own part shares in goods and you use a VAT margin scheme.
Joint purchases and shares
There are rules about how to account for VAT under the margin schemes for goods:
- in which shares have been sold
- which are jointly owned
If your specific circumstances are not covered here, you should contact the HMRC VAT helpline.
How to treat shares
If you have an eligible item in stock, and you sell a share in it, then this is a supply of an undivided share in goods and therefore a supply of services. The sale is not eligible to be accounted for under a margin scheme, so you must account for VAT under the normal rules.
If you sell an item in which ownership of the goods is shared, then you must:
- account for the VAT due on the whole of the sale, not just on your own share
- issue the other shareholders with statements which show their share of the proceeds of the sale, but which do not show any VAT
How to treat joint purchases
You should follow these steps if:
- you and other dealers jointly buy an eligible item for resale
- it’s you who makes the purchase
1. Keep the purchase invoice.
The invoice must show all the details set out in records.
2. Enter the purchase details of the item in your stock book.
The purchase price for the purposes of calculating the margin will be the full joint purchase price.
3. Invoice the other joint buyers for their contribution towards the cost of the item.
There must be no VAT on the invoices. You must also include a signed declaration on each invoice with a statement along the following lines:
‘This payment is your contribution towards the purchase of the above article. I shall be accounting for the full amount of VAT due under the scheme when it is sold.’
4. Keep copies of those invoices and enter the details in your stock book.
You will not use these sales figures when you calculate the overall margin achieved on the final sale.
If you sell the goods
You should follow these steps if you bought the item and are also the one who sells it.
1. Issue a sales invoice and keep a copy of it.
Your invoice must show all the details set out in the selling section of keeping records.
2. Enter the details of the sale in your stock book.
For the purposes of calculating the margin on the sale, your selling price is the full joint selling price, not just your share of the proceeds.
3. Issue statements to the other joint buyers showing their shares of the proceeds of the sale.
There must be no VAT on the statements. You must also include a signed declaration on each statement along the following lines:
‘This payment is your share of the proceeds of the sale of …. . I am accounting for the full amount of VAT due on the sale under the scheme.’
If one of the other joint owners sells the goods
They should follow the steps if you bought the item, but one of the other joint owners sells it.
1. Obtain the purchase invoice for the goods from you.
2. Issue a sales invoice and keep a copy of it.
The invoice must show all the details set out in the selling section of keeping records.
3. Complete their own stock book, treating the purchase and sale of the article as having been made entirely by themselves.
For the purposes of calculating the margin on the sale, the purchase price is the full joint purchase price, and the selling price is the full joint selling price.
4. Issue statements to the other joint owners showing their shares of the proceeds of the sale.
There must be no VAT on the statements. They must contain a signed declaration along the following lines:
‘This payment is your share of the proceeds of the sale of …………… I am accounting for the full amount of VAT due on the sale under the scheme’.
Having passed the purchase invoice on to whoever made the sale, you must close the entry for it in your own stock book and make a note that VAT has been accounted for by another joint owner (you do not have to account for any VAT on the transaction).
You should then cross-refer that entry in your stock book to the sale statement you receive from the other person.
If you sell the goods but did not buy them
You should follow the steps if you did not buy the item but you’re the one selling it.
- Obtain the purchase invoice for the goods from the joint owner who bought them.
2. Issue a sales invoice and keep a copy of it.
Your invoice must show all the details set out in the buying section of keeping records.
3. Complete your stock book, treating the purchase and sale of the article as having been made entirely by yourself.
For the purposes of calculating the margin on the sale, the purchase price is the full joint purchase price, and the selling price is the full joint selling price.
4. Issue statements to the other joint owners showing their shares of the proceeds of the sale.
There must be no VAT on the statements, and must contain a signed declaration along the following lines:
‘This payment is your share of the proceeds of the sale of … . I am accounting for the full amount of VAT due on the sale under the scheme.’
Having passed the purchase invoice on to you, the purchaser must close the entry for it in their stock book and make a note that VAT has been accounted for by another joint owner.
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.