Guidance

The Margin and Global Accounting Scheme (VAT Notice 718)

How to account for VAT on the sale of your goods using the margin scheme or the global accounting scheme.

Detail

This notice cancels and replaces Notice 718 (January 2010).

1. Overview

1.1 Information in this notice

This notice explains when you may use the margin scheme for second-hand goods, works of art, antiques and collectors’ items, or the global accounting scheme to account for VAT on your sale of goods.

It explains:

  • which goods you can sell under the schemes
  • how the schemes work
  • how you must calculate the margin
  • what records you must keep

This notice assumes that you have a working knowledge of basic VAT principles, as outlined in VAT guide (VAT Notice 700).

If, after reading this notice, you need any further help or advice, contact our helpline.

1.2 The changes in this notice

We have rewritten this notice to make it easier for you to find the information you need. General information in sections 2 to 13 applies to both schemes. In the later sections, we describe the global accounting scheme, the conditions for its use, and the impact the margin schemes have on particular business sectors.

Two separate notices have been created by removing the information:

  • which is relevant to people who buy and sell motor vehicles
  • about the auctioneers’ scheme

The rules about margin scheme declarations on invoices have changed, please see paragraphs 5.3 and 15.5 for details.

We have updated the notice to reflect the VAT rate of 20%.

1.3 Who should read this notice

You should read this notice if you make supplies of:

  • second-hand goods
  • works of art
  • antiques
  • collectors’ items

1.4 Force of law

In UK law, Section 50A of the VAT Act 1994 allows the Treasury to make Orders to introduce second-hand schemes.

The VAT (Special Provisions) Order 1995 (as amended) covers all goods other than cars.

Parts of this notice have the force of law under the order. All of sections 4 and 5 have legal force and supplement the law. Certain paragraphs within other parts of the notice also have the force of law. Those paragraphs are indicated by a statement.

2. Basic principles

2.1 The definition of a ‘margin scheme’

A margin scheme is an optional method of accounting which allows you to calculate VAT on the value you add to the goods you sell, rather than on the full selling price.

There are 3 margin schemes for goods, these are:

  • the margin scheme for second-hand goods, works of art, antiques and collectors’ items (referred to throughout this notice as the margin scheme)
  • global accounting
  • the VAT auctioneers’ scheme (see Auctioneers’ Scheme (VAT Notice 718/2))

2.2 Why you would want to use a margin scheme

Using a margin scheme will reduce the VAT you have to pay if you sell second-hand goods, works of art, antiques or collectors’ items on which you could not claim back any VAT when you purchased them.

Without a margin scheme, you would have to account for VAT on the full selling price of each item.

Using a margin scheme allows you to account for VAT on the difference between the price you paid for an item and the price you sold it for.

If you sell an item for less than you paid for it, you will not have any VAT to account for on the sale.

2.3 Conditions for using the schemes

You do not have to use the margin schemes, they’re optional.

If you do decide to use one, there are a number of conditions you will have to meet. If you cannot meet all the conditions, you cannot use the scheme.

The detailed conditions are explained throughout this notice. The main ones are:

  • the goods must be eligible (see paragraph 2.7)
  • you must have acquired the goods in eligible circumstances, in most cases, this means that you obtained the goods for resale in circumstances where you could not claim any VAT back (see paragraph 2.9)
  • you must calculate the margin in accordance with the rules of the scheme, there are special rules about how to calculate your buying price, your selling price and your margin under the schemes, the margin you calculate under the scheme may not be the same as your profit margin (see paragraph 3.3)
  • you must meet the record keeping rules of the scheme, there are special rules about invoicing and stock records (see section 5 and section 6)

2.4 Strict conditions for eligibility

The conditions about eligibility of goods are strict to ensure that only those goods which the law permits, and on which there was no VAT to recover are sold under the margin schemes. They prevent businesses from declaring less VAT than is due on goods which are not covered by the schemes.

The conditions about record keeping and invoicing are strict because, to take advantage of the financial benefit of using a margin scheme, you must be able to provide us with clear evidence of the margins you have achieved.

2.5 If you cannot meet all the conditions

If you sell an eligible item, but cannot meet all the record keeping, invoicing and accounting requirements, you cannot use a margin scheme.

Even though that item would otherwise have been eligible for onward sale under a margin scheme, you must deal with the sale in the normal way, accounting for VAT on the full selling price.

2.6 If you have reclaimed VAT

If you have reclaimed, or were entitled to reclaim VAT on an item you’ve purchased, you cannot use a margin scheme when you sell it. You must account for VAT on the full selling price under the normal rules.

The only exception to this rule is where you opt to use one of the margin schemes for imported works of art, antiques and collectors’ items and for works of art obtained from creators or their heirs (see section 10).

You cannot make an item eligible for the schemes by refraining from claiming the VAT back on it. Any item on which you were charged VAT will be ineligible.

2.7 Categories of goods you can sell under the margin schemes

This is a quick guide to the goods which are eligible to be sold under the scheme. If you are in any doubt, you should refer to section 20 where we have reproduced the law on eligible goods.

Second-hand goods

The legal definition of second-hand goods is goods which are suitable for further use as they are, or after repair. In most cases, goods which are second-hand in the ordinary usage of the term will be eligible for the margin schemes.

For the special rules about the legal definition of a second-hand motor vehicle, see The margin scheme on second-hand cars and other vehicles (VAT Notice 718/1).

Works of art

The legal definition of works of art includes pictures, paintings, collages and drawings executed by hand by the artist. Craft items and items produced in a technical or industrial context may not be eligible to be sold under the margin schemes. If you are in any doubt, please check the list in paragraph 20.1.

Antiques and collectors’ items

The legal definition of an antique is an item, other than a work of art or a collectors’ item, which is over 100 years old.

Not everything which somebody might collect will be included in the legal definition of a collectors’ item for margin scheme purposes. If you are in any doubt, check the list in paragraph 20.1.

2.8 Categories of goods you cannot sell under the schemes

You must not use a margin scheme to account for the sale of:

  • precious metals
  • investment gold
  • precious stones

There’s more information about these categories of goods in paragraph 20.2.

You can only use a margin scheme to account for sales of air guns if you’re registered under the Firearms Act 1968.

There are special rules about types of goods you must not sell under the global accounting scheme, see paragraph 14.5 for more information.

2.9 Can you sell all eligible goods under the schemes

You can only use a margin scheme if both the item, and the circumstances in which you bought it are eligible. Eligible circumstances are those in which you were not charged VAT when you purchased the item.

The most common ones are where you buy the goods from:

  • a private individual or an unregistered business which does not have to charge VAT to you
  • another business which is selling them on to you under a margin scheme

If you have bought an item and VAT is shown separately on the purchase invoice, you cannot sell that item on under a margin scheme, even if you have not claimed the VAT back. The only exception to this rule is where you opt to use one of the margin schemes for imported works of art, antiques and collectors’ items and for works of art obtained from creators or their heirs (see section 10).

2.10 Sales under the normal VAT rules

You can use a margin scheme for some of your sales and the normal rules for others.

But, if you have sold an item under the normal VAT rules (that is, you charged VAT on the full selling price), you cannot go back and apply a margin scheme to that sale later.

2.11 How margin schemes affect VAT on your overheads

You can reclaim VAT you’re charged on any business overheads, repairs, parts or accessories, as usual. But you must not add any of these costs to the purchase price of the goods you sell under the scheme.

For example, if you purchase new parts and fit them to a second-hand clock, you cannot add the cost of those parts to the purchase price you use when you calculate your margin.

3. Making your margin scheme calculations

3.1 How to calculate your selling price

Your selling price is everything which you’re to receive for the goods, whether from the buyer or a third party. It includes incidental expenses directly linked to the sale which you have charged to the customer, for example:

  • commission
  • packaging
  • transport
  • insurance costs

Optional extras charged to the buyer, including any insurance provided by a third party, and disbursements do not form part of the selling price, you should account for these separately outside the margin scheme. You can find more information about disbursements in section 25 of the VAT guide (Notice 700).

If the buyer is charged by another business, for example, for delivering the item, then that’s a separate supply of services between the courier and the buyer, it will not form part of your selling price.

The consideration you receive for the goods may not be wholly in money, if that’s the case, the normal rules about value in VAT guide (VAT Notice 700) will apply.

3.2 How to calculate your purchase price

Your purchase price is everything which you had to pay for the goods, it will mirror the rules for the selling price described in paragraph 3.1. It includes incidental expenses directly linked to the purchase which you were charged by your supplier, for example:

  • commission
  • packaging
  • transport
  • insurance costs

You must not include any cost to you of bringing the goods to sale. Your purchase price does not include the cost of repair, refurbishment or your business overheads.

For example, if you purchase an antique table, and have it restored prior to putting it up for sale, you must not add the cost of the restoration to the purchase price of the table. You must use the original price you paid for the table when you calculate the margin for the purposes of the scheme.

Remember: the margin schemes tax the difference between what you paid for the item and what you sold it for, not the overall profit you have made on it.

3.3 How to calculate the margin

Under the margin schemes, you only have to account for VAT when you sell an item for more than you paid for it.

To work out the VAT due on an individual margin scheme sale, follow the steps in the example:

Step  
(a) Purchase price £1,500.00
(b) Selling price £2,000.00
(c) Gross margin (b - a) £500.00
(d) VAT payable (c × 1/6 ) £83.33

The calculation of the VAT due depends on the VAT rate in force.

The VAT fraction allows you to calculate the amount of VAT included in a given sum of money.

A standard rate of VAT of 20% gives a VAT fraction of 1/6. When you’ve worked out your gross margin, multiply the figure by 1, then divide by 6.

For more information about how to calculate your margin if you’re using global accounting, see paragraph 14.8.

4. Buy and sell goods under the margin scheme

This section has force of law

4.1 What you must do when you buy goods

The table lists the steps you must follow when you buy goods for resale under the margin scheme.

Step Action Details
1 Check that the item is eligible for the scheme. See section 2 for these rules.
2 Obtain a purchase invoice. If you’re buying from a private individual or an unregistered business, you must make out the invoice yourself and include all of the details in paragraph 5.3.
3 Enter the purchase details of the item in your stock book under the appropriate headings. The purchase price must be the one you agreed with the seller. You must not alter this price and you must not add the cost of repair, refurbishment or business overheads to it.

If you buy a number of items as a single lot but intend to sell them separately, you must allocate a purchase price to each one.

4.2 What you must do when you sell goods

The table lists the steps you must follow when you sell goods under the margin scheme.

Step Action Details
1 Check first that you’ve followed all of the rules relating to the purchase of the item See paragraph 4.1. If you have not, you cannot use the margin scheme
2 Make out a sales invoice The invoice must include all of the details in paragraph 5.3.
3 Enter the sales details of the item in your stock book under the appropriate headings  
4 Issue the invoice to your customer and keep a copy for your records If you include more than one item on the same sales invoice, you must allocate a selling price to each one

5. Records and accounts

This section has force of law

5.1 What records you must keep

Record keeping (VAT Notice 700/21) gives guidance on the general records you must keep if you’re registered for VAT.

If you use the margin scheme, there are some additional record keeping rules which apply to your stock book and invoices - paragraphs 5.2 to 5.3 give details.

These additional rules exist so that there will be a clear audit trail of the margin you’ve achieved on each item you’ve sold. It’s important that you keep to these rules so that you can continue using the margin scheme. If we cannot check the margins you have declared from your records, VAT will be due on the full selling price of the goods you’ve supplied, even if they were otherwise eligible for the scheme. If you are not sure whether your records meet the margin scheme rules, please contact our helpline.

5.2 The rules for stock books

You must keep your stock book up to date and it must include all of the information in the table. This applies to each item you purchase for resale under the margin scheme. You may, if you wish, include further information for your own accounting purposes.

Purchase details Sales details
Stock number in numerical sequence  
Date of purchase Date of sale
Purchase invoice number (unless you made out the purchase invoice yourself - see paragraph 5.3) Sales invoice number
Purchase price Selling price, or method of disposal
Name of seller Name of buyer
Description of the item  
  Margin on sale (sales price less purchase price)
  VAT due (margin × 1/6)

You must include your margin scheme calculations under the appropriate headings in your stock book. No VAT will be due if your purchase price is higher than, or the same as, your selling price. In these circumstances you should show the VAT due as ‘nil’ in your stock book.

You must not offset any VAT on goods which you sold at a loss against VAT on goods which you have sold at a profit. The exception to this is if you use global accounting. For more information see section 14.

An example of a margin scheme stock book is included at section 6.

5.3 The rules for margin scheme invoices

The information in the table must always appear on the invoices you receive or issue.

Remember: if you’re buying from a private individual or an unregistered business, you must make out the purchase invoice yourself.

Purchase invoices Sales invoices
Seller’s name and address Your name, address and VAT registration number
Your name and address The buyer’s name and address
A means of cross-referencing between the sales system and the stock book, for example, the stock book number A means of cross-referencing between the sales system and the stock book, for example, the stock book number
Invoice number (unless you made out the purchase invoice yourself) Invoice number
Date of transaction Date of transaction
A description of the item A description of the item
Total price - you must not add any other costs to this price Total price - you must not show VAT separately
If you bought the item from another VAT-registered business, any of the following, margin scheme - second-hand goods, or margin scheme - works of art or margin scheme - collectors’ items and antiques Any of the following, margin scheme - second-hand goods, or margin scheme - works of art or margin scheme - collectors’ items and antiques

Note: if the purchase invoice shows a separate VAT amount, the item is not eligible to be sold under the margin scheme.

5.4 Filling in your VAT Return

You will need to fill in a VAT Return at the end of each tax period. Here are the special rules you must follow for any goods which you have bought or sold under a margin scheme during the tax period, include the:

  • output tax due on all eligible goods sold in the period covered by the return in box 1
  • full selling price of all eligible goods sold in the period, less any VAT due on the margin in box 6
  • full purchase price of eligible goods bought in the period in box 7

There is no requirement to include margin scheme purchases or sales in boxes 8 and 9 of your VAT Return.

Further guidance on how to fill in VAT Returns is available in VAT Notice 700/12: how to fill in and submit your VAT Return.

5.5 How long you must keep records

Generally, you must keep all your business records for VAT purposes for at least 6 years. If the 6-year rule causes you serious storage problems or undue expense, then you should consult our helpline. We may be able to allow you to keep some records for a shorter period.

But if your current stock includes items which you obtained more than 6 years ago, you must retain all the evidence which will show their eligibility for margin scheme treatment when you eventually sell them.

5.6 Do you need to keep records for goods on sale or return

If your stock includes goods supplied to you on a sale or return basis (see paragraph 14.4 in VAT guide (VAT Notice 700)), you must include, in your stock book or in a separate record, the following details for each item:

  • the date of transfer of the item
  • description of the item
  • the name and address of the person transferring the item to you
  • the date of sale or return

Similarly, if any goods are removed from your stock on a sale or return basis to another business’s premises, you should note your stock record with the date and details of the business to whom you have transferred the goods.

5.7 Invoices in foreign currencies

If you’re buying and selling eligible goods in a foreign currency (including euro), you must convert the price into sterling in order to calculate your margin.

Purchase invoices

If you buy a number of items at an inclusive price and do not intend to sell them as one lot, you must convert the price to sterling and then apportion this amount between the items. You must then enter the sterling amounts in your stock record on an item by item basis.

Sales invoices

If you issue a sales invoice in a foreign currency, the invoice must also show the sterling equivalent of the selling price.

If the invoice covers more than one item, it must show the price, both in foreign currency and sterling, for each item. You must then enter the sterling amounts in your stock record on an item by item basis.

If, however, you’re selling as one lot goods which you bought as one lot, you need only show a total foreign currency and sterling value for that lot.

To convert amounts in foreign currencies you must use one of the methods outlined in VAT guide (VAT Notice 700). Whichever method you choose, you must use the exchange rate which was current at the time the transaction took place.

6. Example of a margin scheme stock book

6.1 Example of how to complete your stock book

Purchase details          
1 2 3 4 5 6
Stock number Date of purchase Purchase invoice no Purchase price Name of seller Description of item
100 01/02/08 50 £2,500.00 Mr J Smith Clarice Cliff tea service, Crocus pattern
Sales details     Accounting details    
7 8 9 10 11 12
Date of sale Sales invoice number Name of buyer Selling price Margin (11-4) VAT due
31/03/08 150 Mr F Bloggs £3,000.00 £500.00 £83.33

7. The margin schemes and buying and selling within the EU

7.1 Use the schemes for goods you buy from within the EU

All member states operate a margin scheme but you can only use one of the UK margin schemes for the onward sale of goods in the following circumstances.

7.1.1 Buying goods from a private individual

There will be no VAT due on these goods when they’re brought into the UK. You can use a margin scheme for the onward sale of these goods, provided you can meet all the conditions of the scheme.

7.1.2 Buying goods from a registered business under a margin scheme

As with transactions between UK VAT-registered dealers, you can use a margin scheme if one was used when the goods were supplied to you.

All member states operate a margin scheme. Margin scheme invoices must include one of the following:

  • a reference to Articles 313, 326 or 333 of the EC VAT Directive 2006/112/EC
  • a reference to the corresponding part of the relevant national VAT legislation
  • another declaration to indicate that the goods have been sold under the margin scheme

7.2 How to treat invoices from EU businesses

Some member states require invoices for supplies made in their country to include the VAT registration number of the customer.

If you receive an invoice for a supply from another member state which shows one of the margin scheme indications listed in paragraph 7.1.2 or your VAT registration number, then if you’re sure that the supply has been made under a margin scheme, you can enter the details into your scheme records.

If you receive an invoice for a supply from another member state and it shows your VAT number, but does not show one of the margin scheme indications listed in paragraph 7.1.2, then it’s likely that the goods have not been supplied under a margin scheme.

You must account for acquisition tax in the UK and charge VAT on the full selling price of the goods when you sell them. There’s more information about such transactions in The single market (VAT Notice 725).

If you are in any doubt about whether the supply was made under a margin scheme, you should check with your supplier before entering the details into your records.

7.3 How to treat sales to other member states

Sales made under a margin scheme to other EU member states are treated in exactly the same way as sales within the UK.

This means that VAT is due on the margin in the UK and you must issue a normal margin scheme sales invoice (see paragraph 5.3).

If you’re selling goods under the scheme to a registered business in another member state, then there is no requirement to obtain that business VAT registration number. If you prefer, you can, in agreement with that dealer, treat the sale outside the margin scheme. If you do that, you can zero rate the sale under the normal EU supply rules. You’ll have to obtain the dealer’s VAT registration number and show it on your invoice. For detailed information about the rules, see The single market (VAT Notice 725)

If you’re selling eligible goods to EU private individuals, you can either use one of the margin schemes, or the normal VAT arrangements, that is you charge VAT on the full selling price.

Paragraph 7.5 explains the procedures for dealing with the purchase and sale of new means of transport.

7.4 How to treat the transfer of your own goods

The transfer of goods within the same legal entity from one EU member state to another is deemed to be a supply of goods for VAT purposes. See section 9 of The single market (VAT Notice 725).

If you transfer your own goods to another EU member state using one of the margin schemes, and you supply the goods to yourself at the price for which you obtained them, then you will not have to account for any VAT on the transfer in the UK, and you will not have to account for acquisition VAT in the other member state. If you sell the goods on after you transferred them, that sale will be subject to the VAT rules of the member state in which you make the sale.

7.5 Can you use the margin schemes for the purchase and sale of new means of transport

New means of transport are always liable to VAT in the member state of destination. This means that any new means of transport that you purchase from, or sell to, another member state will not be eligible for the margin scheme.

You can find more information in New means of transport (VAT Notice 728).

7.6 EC Sales Lists and Intrastat

You do not have to complete EC Sales Lists and Intrastat. VAT-registered businesses in the UK who make supplies of goods to VAT-registered businesses in other EU member states are required to complete lists (form VAT101) of their EC supplies.

But, you should not include any margin schemes transactions on an EC Sales List because they’ll be subject to VAT in the UK and therefore not eligible for zero rating.

Intrastat is the system for collecting statistics on the trade in goods between EU member states. But, because margin scheme goods are subject to VAT in the country of origin, there is no requirement either to:

  • include margin scheme purchases or sales in boxes 8 and 9 of your VAT Return
  • complete a supplementary declaration

You can find guidance on completion of your VAT Return in paragraph 5.4.

You can find further information on intra-EC transactions in Claim back VAT paid in the EU if you’re established elsewhere (VAT Notice 723A)), The single market (VAT Notice 725) and Notice 60: Intrastat general guide.

8. The margin schemes and imports and exports

8.1 The margin schemes when you sell goods you’ve imported

You usually cannot use the margin schemes. You’ll be charged VAT on the full value of any goods you import from countries outside the EU. This means you cannot use a margin scheme when you sell those goods on, even if you have not reclaimed the VAT on the purchase.

Also, you cannot use a margin scheme when you sell goods which have been imported into other EU member states, and which you have got somebody to collect on your behalf.

There’s one exception to this rule, and it relates to imported works of art, antiques and collectors’ items. You can opt to use the margin scheme (or the VAT auctioneers’ scheme) for such items provided you comply with the conditions in section 10.

8.2 What you should do if you export goods

If you export eligible goods (see section 20) to a destination outside the EU then you may zero rate the sale, provided you can meet the conditions set out in Goods exported from the UK (VAT Notice 703).

If you can meet the conditions then you should insert ‘nil’ in the VAT due column of your stock book, you should refer in your stock book to the reason why you have closed the entry.

8.2.1 If someone is selling the goods on your behalf

You cannot usually zero rate an export if you sell the goods through an auctioneer or dealer who acts as an agent in their own name.

This is because the sale of the goods is treated as 2 separate supplies, the first from you to the agent, and the second from the agent to the purchaser. Your sale of the goods is a supply to the agent, rather than a supply to the final purchaser. So it can only be treated as a zero-rated export if the agent is located outside the EU.

8.2.2 If you’re an auctioneer

If you’re acting in your own name, can meet the conditions for zero rating in Goods exported from the UK (VAT Notice 703), and sell the exported goods under the auctioneers’ scheme, then you’ll be making a combined supply of goods and services, with VAT due on the profit margin, the liability of your services will follow that of the goods, with the result that the whole supply will be zero-rated. However, you must obtain proof of export, as described in VAT on goods exported from the UK (VAT Notice 703), when you apply zero rating to the margin.

If you sell the exported goods under the margin scheme, then the liability of your services will not follow that of the goods because your services are charged and invoiced outside the scheme. You’ll be able to sell the goods at the zero rate outside the scheme if you can meet the conditions in VAT on goods exported from the UK (VAT Notice 703), but your services will normally be standard-rated.

8.2.3 The retail export scheme

The retail export scheme allows certain overseas visitors to get a VAT refund on goods they buy and export in their personal luggage. You can use the retail export scheme together with the margin scheme or the auctioneers’ scheme but, if you do, you must account for VAT on the sale until you:

  • receive a refund document stamped by UK or EU customs
  • have made the refund to your customer

You can find more information about the retail export scheme in Retail export scheme (VAT Notice 704).

9. Transfers of going concerns and assignments of rights

9.1 Taking over a business as a going concern

If you obtain goods under a transfer of a going concern (TOGC), no VAT will be chargeable on the transfer. But this does not necessarily mean that you will be able to sell the goods on under a margin scheme.

You will only be able to use the scheme if the last person to obtain the goods, other than by way of a TOGC or an assignment of rights, would have been entitled to use a margin scheme to sell them.

It’s the first person in that chain who must have been entitled to use the margin scheme, where there’s been either a:

  • succession of TOGCs or assignments
  • mixture of both

9.2 The records

From 1 September 2007, the seller in a TOGC retains the records. However:

  • the seller must make available to the buyer any information the buyer needs to comply with their duties under the VAT Act 1994
  • where the buyer applies to HMRC for permission to take on the seller’s VAT number, the seller is required to 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, then you’ll be able to sell them under the scheme
  • bought them on invoices showing VAT, then they are not eligible for the scheme and you’ll have to account for VAT on the full selling price when you sell them

So it’s in your own interest when you buy a business as a TOGC to:

  • check the position with the seller
  • make sure that you have all the records you need if you intend to sell eligible goods on under a margin scheme

9.3 The margin scheme purchase price

Your purchase price will be the price paid when the eligible item was bought by the person in the chain who was entitled to use a margin scheme to sell it themselves.

You’ll be able to identify the original purchase price from the purchase invoices which will form part of the business records.

If you’ve obtained goods under a TOGC from a bank or financial institution, and that body had obtained those goods when they were assigned the rights in a hire purchase or conditional sale agreement, then the records that are usually kept in relation to these transactions should provide the information you need.

9.4 The rules for banks and finance houses

If you’re a bank or a financial institution, and you’ve acquired eligible goods as a result of having been assigned the rights to them in hire purchase or conditional sale agreements, then you can only use the margin scheme to sell those goods if the last person to obtain them, other than by way of an assignment of rights or a TOGC, would have been entitled to use the margin scheme.

It’s therefore the first person in that chain who must have been entitled to use the margin scheme, where there has been either a succession of assignments or TOGCs, or a mixture of both.

10. Works of art, antiques and collectors’ items on which VAT has been charged and the margin scheme

10.1 Using the margin scheme or global accounting for works of art

When you obtain goods which have had VAT charged on their full value, they are not normally eligible for the margin scheme.

However, you may opt to use the margin scheme or global accounting for works of art:

  • such as, antiques and collectors’ items which you’ve imported from countries outside the EU
  • you have obtained (which were supplied in the UK or acquired from another member state) from creators or their heirs, whether or not VAT was charged on their purchase or acquisition

If you do not opt to use a margin scheme, or you cannot meet the conditions described in paragraph 10.2, then you must sell the goods under the normal VAT rules.

You can find details of import procedures and special arrangements for supplies of temporarily admitted (TA) goods in Imports (VAT Notice 702).

10.2 The conditions for using this option

If you want to use the margin scheme or global accounting scheme in any of these circumstances, you must meet the following conditions.

You must inform in writing that you’re going to take up the option, and you must specify the date from which you’ll be applying it to the:

VAT Written Enquiries Team
4th Floor West
Alexander House
21 Victoria Street
Southend-on-Sea
Essex
SS99 1BD

You must exercise the option for a period of at least 2 years, after which you must inform the VAT Written Enquiries Team in writing as and when you wish to stop using the scheme.

You must use the scheme in respect of all transactions and goods listed in paragraph 10.1, not just in respect of certain categories of transactions or certain categories of goods.

If, having exercised the option, you decide to sell any goods covered by the option outside the scheme (for example, if you export the goods), you are not entitled to recover any input tax on those goods until the period in which you account for VAT on their sale.

10.3 Your purchase price when you use this option

10.3.1 Imported works of art, antiques and collectors’ items

When you opt to use a margin scheme for imported works of art, antiques or collectors’ items, those goods will carry a reduced VAT rate of 5%.

Your purchase price will be the value for VAT at import, plus the import VAT. You must not reclaim the import VAT as input tax, Imports (VAT Notice 702) contains detailed guidance about the valuation of imported goods for VAT purposes.

VAT-registered dealer using the margin scheme option for an imported antique item

Example Description Amount
a) Value for VAT at import £1,000
b) Import VAT (a × 5%) £50
c) Purchase price for margin scheme (a + b) £1,050
d) Selling price £1,500
e) Margin (d - c) £450
f) VAT due (e × 1/6) £75

10.3.2 Works of art obtained from the creator or their heirs

When you opt to use a margin scheme for works of art obtained (that is supplied in the UK, or acquired from another member state) from artists or their heirs, you must not recover any VAT you’re charged. Under the margin scheme, your purchase price will be the total price of the work of art inclusive of any VAT.

If the work of art is an acquisition from another EU member state you should:

  • account for acquisition tax in box 2 of your VAT Return
  • not recover the corresponding acquisition tax in box 4 (input tax)
  • add this unrecoverable acquisition tax to the net purchase price for margin scheme purposes

VAT-registered dealer using the margin scheme for goods from an artist or their heirs acquired from another member state

Example Description Amount
a) Value of acquisition £1,000.00
b) Acquisition VAT accounted for in box 2 of your VAT Return £175.00
c) Purchase price for margin scheme (a + b) £1,175.00
d) Selling price £2,000.00
e) Margin (d - c) £825.00
f) VAT due (e × 1/6) £137.50

If the work of art was supplied in the UK, you must not reclaim any VAT charged by the supplier.

11. The margin schemes and buying and selling at auction

11.1 Who should read this section

You should read this section if you:

  • sell goods under the margin scheme or the global accounting scheme
  • buy or sell at auction

11.2 What to do if you buy goods at auction

If you intend to use the margin scheme or the global accounting scheme for the onward sale of goods you have bought at auction, you must check whether the goods are eligible.

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 goods you buy, you will not be able to use a margin scheme for your onward sale.

11.3 The purchase price of eligible goods you buy at auction

Your purchase price will be the hammer price of the goods plus charges for services.

The invoice you get from the auctioneer will itemise, for each lot you have bought, the hammer price of the goods and any charges for services (for example, buyer’s premium). These charges must not show VAT separately.

This will be your purchase price for the purposes of the margin scheme or the global accounting scheme, and is the amount that you must show in your stock book. It should be clearly identified on the invoice you get from the auctioneer.

If the auctioneer bills you for any other services, and charges VAT on them separately, you can reclaim the VAT under the normal 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 for goods you have bought at auction, you should check with the auctioneer.

11.4 The selling price of eligible goods you sell at auction

Before the sale is due to take place, you should discuss with the auctioneer whether you want it to be treated under the auctioneers’ scheme or under the normal margin scheme. (The auctioneer’s scheme is a special variation on the normal margin scheme. It works by creating a margin which is equal to the auctioneer’s charge for his services to both the vendor and the purchaser. See Auctioneers’ Scheme (VAT Notice 718/2) for more information.)

If the auctioneer uses the invoice will include Your margin scheme selling price will be
the auctioneers’ scheme the hammer price of the goods, their commission charges, and the net amount payable to you, none of these amounts should show VAT separately the hammer price less the commission charge
the margin scheme the hammer price of the goods, VAT must not be shown separately on this amount the hammer 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.

If the auctioneer’s scheme is used, you’ll get a separate invoice for any charges other than the auctioneer’s commission.

If the margin scheme is used, you’ll be invoiced separately for:

  • the auctioneer’s commission
  • any other charges

You can reclaim the VAT on these invoices under the normal rules but you must not deduct the charges from your margin scheme selling price.

12. The margin schemes and joint purchases and shares

12.1 This section

This section tells you how to account under the margin schemes for goods:

  • in which shares have been sold
  • which are jointly-owned

If your specific circumstances are not covered in this section, you should contact our helpline.

12.2 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 the title to the goods is shared, then you must account for the VAT due on the whole of the sale, not just on your own share, and issue the other shareholders with statements which show their share of the proceeds of the sale, but which do not show any VAT.

12.3 How to treat joint purchases

You should follow the steps in the table if:

  • you and other dealers jointly buy an eligible item for resale
  • it’s you who makes the purchase
Step Action Details
1 Keep the purchase invoice The invoice must show all the details set out in paragraph 5.3
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 and you must endorse each invoice 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

12.4 If you sell the goods

You should follow the steps in the table if you:

  • bought the item
  • are also the one who sells it
Step Action Details
1 Issue a sales invoice and keep a copy of it Your invoice must show all the details set out in paragraph 5.3
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 and you must endorse each invoice 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’

12.5 If one of the other joint owners sells the goods

They should follow the steps in the table if you bought the item, but one of the other joint owners sells it.

Step Action Details
1 Obtain the purchase invoice for the goods from you  
2 Issue a sales invoice and keep a copy of it Their invoice must show all the details set out in paragraph 5.3
3 Complete their own stock book, treating the purchase and sale of the article as having being made entirely by themself 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 they must endorse each invoice 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 down 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 - step 4 in the table.

12.6 If you sell the goods but did not buy them

You should follow the steps in the table if you did not buy the item, but you’re the one selling it.

Step Action Details
1 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 paragraph 5.3
3 Complete your stock book, treating the purchase and sale of the article as having being 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 you must endorse each invoice 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 down the entry for it in their stock book, and make a note that VAT has been accounted for by another joint owner.

13. Further information

13.1 Relief from bad debts

If you supply goods and do not receive payment within certain time limits you may claim relief from VAT on the ‘bad debt’. You will find full details of the time limits and conditions for claiming in Relief from VAT on bad debts (VAT Notice 700/18).

If you sold the goods under a margin scheme, the amount of VAT on which you claim relief cannot be higher than the amount of VAT you accounted for on the margin.

To explain, here are 2 examples based on the following figures:

Goods purchased for £400.00
Goods sold for £500.00
Margin £100.00
VAT on the margin (£100.00 × 1/6) = £16.66

Example 1

The customer pays £350.00, leaving a debt of £150.00.

The debt is more than the margin so the potential bad debt relief is £100.00 (the margin) × 1/6 = £16.66.

Example 2

The customer pays £450.00, leaving a debt of only £50.00. The debt is less than the margin so the potential bad debt relief is £50.00 (the debt) × 1/6 = £8.33.

If you receive payment from your customer after making a claim for bad debt relief, you must refund the appropriate amount to us.

13.2 If you sell insurance with a margin scheme supply

If you sell insurance with a standard-rated product (such as a domestic appliance) the insurance will be exempt from VAT provided:

  • it’s supplied under a contract between an insurer and your customer
  • it’s the customer’s own risk which is being insured, that is, the individual customer’s risk is referred to in the policy, it is not necessary for the customer to be specifically named, if you and the customer are the insured, it’s sufficient for the policy to refer to, for example, ‘J Smith and customers’
  • you disclose the amount of the premium, and any fee (or commission) charged over and above that premium on your sales invoice at the time of sale

If you do not meet these requirements, the insurance element of your supply will be standard-rated.

While insurance is exempt from VAT, it’s subject to insurance premium tax (IPT), which is usually accounted for by the insurer. IPT is due on the gross premium. In most cases, this is the amount the customer pays for the insurance. It will include the premium due to the insurer, plus any commission or fee that you may charge on top.

If you do make additional charges, you should disclose these amounts to the insurer so that they can account for the correct amount of IPT.

You may be liable to register and account for IPT on the fee where:

  • the insurance is subject to the higher rate of IPT (17.5%)
  • you charge a fee in connection with that insurance

You can find further information in Insurance (VAT Notice 701/36) and Notice IPT1: Insurance Premium Tax. Guidance on Mechanical Breakdown Insurance (MBI) and warranties is in The margin scheme on second-hand cars and other vehicles (VAT Notice 718/1).

13.3 How to deal with gifts

If you sell an item which was given to you in the course of your business, then you cannot use a margin scheme. You must account for VAT on the full selling price.

If you give away an item which would have been eligible for sale under a margin scheme, then no VAT is due. You must include full details of the person you gave the item to in your stock book.

13.4 How to deal with private sales

The private sale of goods which are not assets of your business is usually outside the scope of VAT and no VAT is due.

However, you can use a margin scheme for the sale of that item, if:

  • you’re a sole proprietor
  • you sell an eligible item (see paragraph 2.7) which you transfer to your business from your private holdings

You must be able to produce evidence of what the purchase price was when you bought it for your private use. If you cannot do this, you must account for VAT on the full sales value.

13.5 How to deal with hire-purchase sales

13.5.1 Who is your customer

If you sell an eligible item and arrange hire-purchase (HP) terms with a finance company on behalf of your customer, then you’re deemed to be selling the item to the finance company.

No VAT is due on the finance charges, provided these are itemised separately.

13.5.2 Sales records you need to keep

You must transfer the sales price of the item from the hire-purchase agreement to your stock book.

If you have issued your own sales invoice to your customer, and you have a copy of the hire-purchase agreement, then you must either:

  • attach a copy of the completed hire-purchase agreement to the sales invoice
  • include a cross-reference to the hire-purchase agreement in your sales records

If the finance company holds the hire-purchase agreement and you do not get a copy of it for your records, then you must keep a copy of the agreed quotation, or the agreed proposal documents, together with the name of the finance company, the date, and the reference number of the final agreement in your sales records.

You may use a copy of the hire-purchase agreement as your sales invoice provided it shows:

  • all the identifying details of the item
  • the cash price of the item as the gross price payable

(The gross price is the amount borrowed plus any cash deposit paid, plus any amount allowed for a part-exchange item.)

Remember, VAT must not be shown separately on either the:

  • hire-purchase agreement
  • customer’s sales invoice

13.6 Part-exchange goods

The selling price on which you calculate your margin must include the value of the part-exchanged goods if you:

  • sell eligible goods
  • take others in part-exchange

For example, you sell a boat for £2,500 for which you paid £1,500. However, you also take a boat in part-exchange which you value at £500 so the customer actually only hands over a balance of £2,000. The selling price you insert in your stock book must be £2,500 and you must account for VAT on the full margin of £1,000.

At the same time, you must use the value at which you part-exchanged an item as its purchase price in your stock book. In the example, your purchase price would be £500. You must not alter this purchase price.

If you buy from:

  • another VAT-registered dealer, then you must obtain a purchase invoice for the goods
  • a private person or unregistered dealer, then you may include details of part-exchange items on your sales invoice provided all the requirements of paragraph 5.3 are met

13.7 Occasional sales of eligible goods

If you are not in business to buy and sell second-hand goods, but you very occasionally find yourself with an eligible item to sell, and you would like to use a margin scheme for the sale, then you need not comply with the full record keeping requirements in section 4 and 5, provided you meet the other conditions of the scheme, and hold evidence of both the purchase and selling price.

13.8 How finance companies should treat the sale of second-hand repossessed goods

Repossessed goods are goods which have been:

  • voluntarily returned under an hire-purchase agreement
  • repossessed under the terms of a finance agreement
  • returned by a customer under the Consumer Credit Act once they have made 50% of the total payments due

If a finance company sells repossessed second-hand goods, originally sold under a margin scheme and the goods are in the same condition as when they were repossessed, then they do not have to account for VAT on the sale. The condition of the goods is generally unaffected by cleaning, or inclusion of instruction manuals if they are otherwise missing.

If a finance company sells repossessed second-hand goods, originally sold under a margin scheme and the condition of the goods has changed, then they may sell those goods under a margin scheme. The purchase price for margin scheme purposes will be the original price the finance company paid to the dealer. The condition of the goods will have changed if any improvements, repairs, replacement parts, or general making good of damage have been carried out.

13.9 Buying goods from an insurance company or finance house

If you buy eligible goods from either an insurance company which has acquired them as a result of an insurance claim or a finance house which has repossessed them, the company or finance house will not charge you VAT if the goods:

  • are sold on in exactly the same state as they were in when they were acquired
  • were obtained by the company or finance house from a person who would not themselves have charged VAT on their sale, for example, a private individual

You can resell such goods under a margin scheme provided you can meet the conditions of the scheme.

13.10 Artist’s Resale Right charges

Artist’s Resale Right (sometimes known as Droit de Suite) is a royalty which is charged, in certain circumstances, when original works of art are re-sold. It was introduced into the UK in 2006. The charges are outside the scope for VAT purposes. They have no impact on margin scheme calculations. You must not reduce your margin by the cost of the charges.

14. Global accounting scheme

14.1 The meaning of ‘global accounting scheme’

The global accounting scheme is an optional, simplified variation of the margin scheme.

14.2 How it differs from the margin scheme

Under the:

  • standard margin scheme you account for VAT on the margin you achieve on the sale of individual eligible items
  • global accounting scheme you account for VAT on the margin you achieve between your total eligible purchases and total eligible sales in an accounting period

14.3 Businesses that may benefit from the global accounting scheme

It will suit your business and will reduce the amount of VAT you have to pay if you:

  • buy and sell bulk volume, low value eligible goods
  • are unable to maintain the detailed records required of businesses who use the standard margin scheme

14.4 Goods you can sell under the global accounting scheme

You can include most of the items which would be eligible for sale under the margin scheme (see paragraph 20.1).

14.5 Goods you cannot sell under the global accounting scheme

You cannot sell any of the following goods, regardless of their purchase price:

  • aircraft
  • boats and outboard motors
  • caravans and motor caravans
  • horses and ponies
  • motor vehicles, including motorcycles, except those broken up for scrap (see paragraph 14.9)

14.6 What to consider when you start using the scheme

When you start using the global accounting scheme, you may find that you already have eligible stock on hand.

If that is the case, you may include the value of this stock when you calculate your total purchases at the end of the first period. (Paragraph 14.7 explains how to value your stock on hand.)

If you do not take your stock on hand into account, you’ll have to pay VAT on the full price, rather than on the margin you have achieved when you sell it.

14.7 How to value your stock on hand

You must be able to identify:

  • stock which is eligible for global accounting
  • its purchase value

You would normally establish the value from the original purchase invoices.

You may determine the purchase value using another method if:

  • you’re newly registered
  • you do not have original purchase invoices

There is no set way of doing this, but you must be able to demonstrate satisfactorily to us that the method you have used has produced a fair and reasonable total. You must retain evidence of this method with the rest of your global accounting scheme records for 6 years.

Remember, any goods you bought on an invoice which shows a separate VAT figure are not eligible for resale under the scheme.

14.8 Work out the VAT due under the global accounting scheme

VAT is calculated at the end of each tax period. Because you can take account of opening stock in your scheme calculations, you may find that you produce a negative margin at the end of several periods. In other words, your total purchases may exceed your total sales. In such cases, no VAT is due. But you must carry the negative margin forward to the next period as in the following example:

Period 1    
(a) total purchase value of stock on hand £10,000
(b) total purchases from your purchase summary £2,000
(c) total sales from your sales summary £8,000
(d) margin = c - (a + b), sales minus (purchases plus stock on hand), £8,000 - (£10,000 + £2,000) (£4,000)

Because the margin you have produced is negative, there is no VAT for you to pay. However, you must carry this negative margin forward into the next period as follows:

Period 2    
(a) negative margin from previous period £4,000.00
(b) total purchases for this period £1,000.00
(c) total sales for this period £7,000.00
(d) margin = c - (a + b), sales minus (purchases plus negative margin), £7,000 - (£1,000.00 + £4,000.00) £2,000.00
(e) VAT due = margin (£2,000.00) × VAT fraction (1/6) £333.33

There is no negative margin to carry forward this time. Therefore, in the third period, you would calculate VAT on the margin between total sales and total purchases.

You may only offset a negative margin against your next global accounting margin. You cannot offset it against any other figure or record.

You must keep copies of these calculations with your other global accounting scheme records for 6 years.

14.9 Using the global accounting scheme for the sale of scrap

You may include motor vehicles which would be eligible for sale under the margin scheme in global accounting if you break them up and sell them on as scrap.

You must keep the normal commercial documentation to show that the vehicle no longer exists and that the scrap parts are therefore eligible for global accounting.

If:

  • the vehicle has already been entered into your second-hand stock book, then you should close the entry and transfer the details to your global accounting scheme purchase records
  • you buy a scrap motor vehicle for more than £500, then you can still use the global accounting scheme for disposal of the components, however, any individual component valued at over £500 must be excluded from global accounting
  • you’re charged VAT separately when you buy a vehicle, then you cannot use either the global accounting scheme or the margin scheme when you sell any scrap parts from that vehicle

14.10 Using the global accounting scheme for bulk purchases and collections

You can, even if the combined purchase price is over £500.

However, if any individual item has a purchase value of over £500, you must not sell it on under global accounting.

You may sell it under the normal margin scheme if you can meet the record keeping conditions detailed in sections 4 and 5. If you intend to do this, you will have to make sure that the item is identified and fully described on your purchase invoice.

Alternatively, you may sell the item under the normal VAT rules.

14.11 Global accounting in other situations

If you:

  • split collections of items, such as stamp collections, and either sell the items separately, or use them to form other collections, then you can account for those sales under the global accounting scheme, provided all the items are eligible
  • purchase an eligible item for £500 or more, and the item is made up of several components valued at less than £500, but you sell the component items individually (for example, you purchase a tea set for £600 and you sell the cups and saucers individually for £50 each), then you can account for the sales under the global accounting scheme
  • purchase an eligible item for £500 or more, and the item is made up of several components valued at less than £500, and you sell the item in the same state as it was purchased (for example, you purchase the tea set for £600, but you sell it on as a tea set), then you cannot account for the sale under the global accounting scheme, you may account for the sale under the margin scheme, provided you can meet the record keeping requirements
  • combine 2 or more items to produce only one item for resale, (for example, you use one item as a spare part for another), then you can account for the sale under the global accounting scheme
  • buy eligible items and use them to produce something which is not eligible, (for example, you buy second-hand fabrics and trimmings and make them into cushion covers), then you cannot account for the sale under either the global accounting scheme or the margin scheme, you must sell the item under the normal rules and account for VAT on the full selling price

15. Records and accounts for the global accounting scheme

15.1 Records you need to keep

You do not need to keep all the detailed records which are required under the normal margin scheme, for instance, you do not have to maintain a detailed stock book.

Global accounting records do not have to be kept in any set way but they must be complete, up to date and clearly distinguishable from any other records.

You must keep records of purchases and sales as described in the following paragraphs, together with the workings you used to calculate the VAT due. You must keep all your records for 6 years.

If we cannot check the margins you have declared from your records, VAT will be due on the full selling price of the goods you’ve supplied, even if they were otherwise eligible for the scheme. If you are not sure about how to maintain your global accounting records, please contact our helpline.

15.2 Buying goods under the global accounting scheme

The following text and bullets have force of law

When you buy goods which you intend to sell under global accounting you must:

  • check that the goods are eligible for global accounting
  • obtain a purchase invoice, if you buy from a private person or an unregistered dealer, you should make out the invoice at the time you buy the goods, if you buy from another VAT-registered dealer, the dealer must make out the invoice at the time of sale
  • enter the purchase details of the goods in your global accounting purchase records, the purchase price must be the price on the invoice which has been agreed between you and the seller

You cannot use the scheme if VAT is shown separately on the invoice.

15.3 Details that must be included on purchase invoices

The following text and bullets have force of law

Purchase invoices must include:

  • your name and address
  • the seller’s name and address
  • invoice number
  • date of transaction
  • description of goods (this must be sufficient to enable us to verify that the goods are eligible for global accounting, for example 4 tables, 10 chairs - ‘assorted goods’ is not acceptable)
  • total price, you must not show VAT separately and, for goods purchased from another VAT-registered dealer:
    • the statement ‘global accounting invoice’

15.4 Selling goods under the global accounting scheme

If you have complied with the purchase conditions, you may use global accounting when you sell the goods by:

  • recording the sale in your usual way, for example, by using a cash register
  • issuing a sales invoice for sales to other VAT-registered dealers and keeping a copy of the invoice
  • transferring your daily takings for eligible goods or totals of copy invoices to your global accounting sales record or summary (see paragraph 15.6)

This paragraph has force of law

You must be able to distinguish at the point of sale between sales made under global accounting and other types of transaction.

15.5 Details to include on sales invoices

The following text and bullets have force of law

You must issue a sales invoice to other VAT-registered dealers. These invoices and any other global accounting sales invoice you issue must show the following details:

  • your name, address and VAT registration number
  • the buyer’s name and address
  • invoice number
  • date of sale
  • description of goods (this must be sufficient to enable us to verify that the goods are eligible for global accounting, for example 4 tables, 10 chairs - ’assorted goods’ is not acceptable)
  • total price - you must not show VAT separately
  • the statement ‘global accounting invoice’
  • you are selling an item for more than £500 and you do not want the purchaser to know that you bought it under global accounting, you may use one of the margin scheme sales invoice statements listed in paragraph 5.3

15.6 What details you should include in your purchase and sales summaries

The following text and bullets have force of law

Although you do not have to keep your purchase and sales records or summaries in any particular way, they must include the following details taken from your purchase invoices and any sales invoices you issue:

  • invoice number (where the purchase invoice shows one)
  • date of purchase or sale
  • description of goods (this must be sufficient to enable us to verify that the goods are eligible for global accounting, for example, 4 tables, 10 chairs - ‘assorted goods’ is not acceptable), and total price

Paragraph 14.8 gives an example of how you should work out the VAT due at the end of each period.

15.7 If you stop using the scheme or transfer goods as a going concern

The following has force of law

If you stop using global accounting for any reason, for example, you deregister for VAT, you must make a closing adjustment to take account of purchases for which you have taken credit, but which have not been sold (in other words, your closing stock on hand). The adjustment required in this paragraph does not apply if the total VAT due on your stock on hand is £1,000 or less. In the final period for which you are using the scheme, you must add the purchase value of your closing stock to your sales figure for that period. In this way you will pay VAT (at cost price) on the stock for which you previously had credit under the scheme.

Example of a closing adjustment under global accounting

At the end of the period calculate:

Value of purchases during the period £5,000.00
Value of sales during the period £10,000.00
Purchase value of closing stock £8,000.00
Add purchase value of closing stock to sales for period (c + b) = £18,000.00
Subtract purchases in this period from sales (d - a) = £13,000.00
VAT due on margin (e × 1/6) = £2,166.66

You must make a similar adjustment if you transfer goods as part of a TOGC. In that case, you should add the purchase value of goods included in the scheme to your sales figure for the period in which the TOGC takes place. This adjustment is separate from the TOGC itself, which is not subject to VAT.

15.8 Selling items outside the scheme

If you sell goods which you had included in your global accounting purchase records outside the scheme (for example, you export them), you must adjust your records accordingly.

You do this by subtracting the purchase value of the goods you have sold outside the scheme from your total purchases at the end of the period.

If you do not know the exact purchase value, for example, the goods may have been part of a bulk purchase, you must apportion a value. There is no set way of doing this, but your method must be fair and reasonable and you must be able to demonstrate to us how you determined the value.

You must retain any such evidence and calculations with your records for 6 years.

15.9 How to treat stolen or destroyed goods

The following paragraph has force of law

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

15.10 How to treat repairs and restoration costs

You can reclaim the VAT you’re charged on any business overheads, repairs, restoration costs, and so on. But you must not add any of these costs to the purchase price of the goods you sell under the scheme.

15.11 How to treat global accounting invoices in foreign currencies

15.11.1 Purchases

Global accounting invoices will normally only show a total price for the goods you buy and sell under the scheme.

If the individual purchase price of each item on the invoice is below £500, you need to convert the invoice total to sterling before you enter it into your purchase records.

Because individual items with a purchase value over £500 are not eligible for this scheme, you must deduct the value of any such items from the purchase invoice total, by:

  • converting the total value in foreign currency (including euro) into sterling
  • apportioning this figure so as to exclude the item, or items, with individual purchase values over £500

You then enter the net purchase amount in sterling in your purchase records.

To convert amounts from foreign currencies you must use one of the methods outlined in VAT guide (VAT Notice 700). Whichever method you adopt, you must use the exchange rate which is current at the time the supply is made to you.

15.11.2 Sales

If you issue a global accounting sales invoice in a foreign currency, you must show the sterling equivalent of the total value of the goods. Even if you sell more than one item on the same invoice, you need only show the total foreign currency and sterling price on that invoice. You must enter the sterling price in your sales record.

To convert amounts into foreign currencies you must use one of the methods outlined in VAT guide (VAT Notice 700). Whichever method you adopt, you must use the exchange rate which is current at the time you make the supply.

16. Dealers in second-hand horses and ponies and the margin scheme

16.1 What you need to know

This section deals with the special rules you need to follow if you want to sell second-hand horses and ponies under the margin scheme. It does not give you detailed information about how to use the scheme, that information is in sections 2 to 13.

You can only sell horses and ponies which are second-hand under the margin scheme.

A horse or pony which has previously been owned by somebody else is second-hand.

A horse or pony which you have bred and are selling for the first time is not second-hand, regardless of how much work or expense you have put in to preparing it for sale.

If VAT is shown separately on the purchase invoice for a horse or pony you have bought, you cannot use the margin scheme when you sell the animal on.

Paragraphs 16.2 to 16.6 of this section tell you what records you must keep if you use the special three-part forms supplied by The British Equestrian Trade Association (BETA). Paragraph 16.7 tells you what records you must keep if you do not use the special three-part forms.

16.2 The three-part form

The three-part form is a document you can use to account for VAT on the sale of horses and ponies under the margin scheme. It’s an alternative to keeping the normal margin scheme records. The three-part forms come in numbered sets, with a VAT summary sheet at the back. They are sold by:

The British Equestrian Trade Association (BETA)
Stockeld Park
Wetherby
West Yorkshire
LS22 4AW

If you use the three-part form each time you sell a second-hand horse or pony, it will provide you with all the stock and sales records you need to keep for the margin scheme. You will not need to keep a stock book or invoices as described in section 5.

This is how the form creates your records:

Part becomes
A of the form (white) your stock record
B of the form (pink) your copy sales invoice
C of the form (yellow) your customer’s purchase invoice

You must not alter the serial number on the form.

The following paragraphs tell you how to complete the form. If you do not complete it correctly, our officers will not be able to confirm the margin you have achieved and you’ll have to account for VAT on the full selling price.

As with all your other VAT books and records, you must keep your parts of the form for 6 years after the date of sale of the animal.

16.3 Buy a second-hand horse or pony using the three-part form

16.3.1 Buying a horse or pony from a private individual

Step Action Details
1 Complete the ‘Description’ and ‘Written Description’ sections of Parts A, B and C of the form.  
2 Write the unique identifying number of the horse’s passport in the space for ‘reg no’. If the horse or pony does not have a passport, you and a vet must sign Parts A, B and C of the form to certify that the horse or pony is the one described on the form. If the purchase price of the horse or pony is £500 or less, the vet’s signature is not necessary.
3 Give the form a stock number in numerical sequence  
4 Complete the Purchase Record section on the reverse of Part A  
5 Keep all three parts of the form You’ll need them when you resell the horse or pony.

When you’re completing the ‘Description’ and ‘Written Description’ at step 1 of the table, you must do this in accordance with the standard laid down by the Royal College of Veterinary Surgeons (RCVS) in the booklet ‘Verification of horses: instructions for veterinary surgeons’. The booklet is published by the Weatherbys Group in conjunction with the RCVS and the British Equine Veterinary Association.

You can buy a copy online or write to

Bettrends Shop
Sanders Road
Wellingborough
Northants
NN8 4BX

16.3.2 Buying from someone who is selling under the scheme

You should follow the rules in the table.

If the seller is using the three-part form:

  • they will give you Part C of their form, and you must keep that with your own partially-completed form
  • they will not have to sign the declaration on the reverse of Part A
  • if the horse or pony does not have a passport and has a purchase price of £500 or more, the Part C you’re given should already have been signed by a vet, you need only copy the details of the vet’s name, practice, and so on on to your form, you do not need the the vet to sign it

16.4 Selling a horse or pony, using the three-part form

Step Action Details
1 Check that the horse or pony is eligible to be sold under the margin scheme. The animal must be second-hand, and have been bought under eligible circumstances. If it does not meet these conditions, you must account for VAT on the full selling price.
2 Check that you followed the procedure in paragraph 16.3.1 when you bought the horse or pony. If you have not, you cannot use the three-part form when you sell the horse or pony on under the margin scheme.
3 Complete the sales record sections on the reverse of Parts A, B and C.  
4 Complete the VAT record section on the reverse of Part A. Paragraph 3.3 tells you how to work out the VAT due on the sale.
5 Keep Parts A and B.  
6 Give Part C to the buyer.  
7 Complete the VAT summary sheet.  

16.5 Buying a horse or pony at auction, using the three-part form

You should follow the steps in the table at paragraph 16.3.

If the horse or pony is being sold under the scheme, the auctioneer will give you Part C of the seller’s form (you must keep this part with your own partially completed form).

If the horse or pony is sold by a private person, you must get the auctioneer to complete details of his name, address and lot number on the reverse of Part A of your form.

16.6 Selling a horse or pony at auction, using the three-part form

You should tell the auctioneer that your horse or pony is being sold under the scheme and give the auctioneer Parts B and C of your form, which must already be completed as per paragraph 16.4.

After the sale:

  • the auctioneer will complete the sales details on the reverse of Parts B and C, adding their name and address
  • Part C will be given to the buyer
  • Part B will be returned to you
  • you should complete the sales and VAT records sections on your Part A

16.7 Records to keep if you do not use the three-part form

If you prefer not to use the three-part form available from BETA, you can maintain the normal records and accounts detailed in section 4 and section 5.

If you purchase a horse or pony from a VAT-registered dealer who uses the three-part form, either direct or at auction, you will be given Part C of the form.

You may use this as your purchase invoice and enter the details in your stock book. You must include sufficient details in your stock book to identify the horse or pony.

If you do decide to keep normal margin scheme records, you must include enough information in your stock book to identify the horse or pony, such as:

  • unique identifying passport number
  • colour
  • sex
  • type or breed (for example, cob or thoroughbred)
  • age (if known)
  • height
  • stable name (if known)
  • distinctive markings

17. Agents and the margin scheme

17.1 The definition of an ‘agent’

Dealers often sell goods for, or on behalf of other dealers or private sellers. They may either:

  • retain a percentage of the selling price
  • make a separate charge to the owner

In these circumstances, the seller is acting as the agent of the person who owns the goods. Both parties will need to follow the rules about agents in this section.

17.2 How to calculate your margin if you’re the owner of the goods

You can still account for your own sale under a margin scheme if:

  • you own eligible goods
  • you’re registered for VAT
  • an agent sells the goods on your behalf in their own name

Your purchase price will be calculated in the normal way (see paragraph 3.2). Your selling price will depend on the way your agent has accounted for their sale and will be the same as the agent’s purchase price (see paragraphs 17.4 and 17.5). Ask the agent if you are not sure what your selling price should be.

17.3 Using a margin scheme if you’re an agent

If you’re an agent acting in your own name (sometimes known as an undisclosed agent), you can use a margin scheme when you sell eligible goods (see section 2).

Your margin will be equal to the charges you make for your services as an agent. The way you calculate your margin will depend on how you have decided to account for those charges. You can find more information about agents and VAT, and about the options you have for accounting for your charges, in VAT guide (VAT Notice 700).

The following paragraphs explain how your choice of accounting method will affect your margin scheme calculations.

17.4 If you’re an agent and you invoice your charges separately to the seller

If you do this, you have to issue:

  • an invoice for your charges with VAT on it
  • another separate invoice for the goods you have sold under the margin scheme

You calculate your margin on the sale of the goods like this:

Purchase price

The total price you receive for the goods, not including any charges made to the buyer. (If the seller is using a margin scheme for their sale of the goods to you, this figure will also be their selling price for margin scheme purposes.)

Selling price

The total price you receive for the goods including any incidental expenses and commission you charge to the buyer. (If you charge the buyer for any optional services which are not directly linked to the goods, you should invoice for these outside the margin scheme.)

Margin

The difference between the purchase price and the selling price.

VAT due

Apply the VAT fraction to the margin (see paragraph 3.3).

17.4.1 How using a margin scheme helps you

If you:

  • use a margin scheme, and invoice your charges separately to the seller, then you’ll pay VAT on the invoice for your charges to the seller, and your margin, which will be equal to any charges you make to the buyer, but you will not pay any VAT on the goods
  • do not use a margin scheme, and invoice your charges separately to the seller, then you’ll pay VAT on your charges to both the seller and the buyer, and the goods

17.5 If you’re an agent and you include your charges to the seller in the sale of the goods

If you include your charges to the seller in the sale of the goods, you calculate your margin like this:

Purchase price

The total sum you receive for the transaction less your charges to the seller. (If the seller is using a margin scheme for their sale of the goods to you, this figure will also be their selling price for margin scheme purposes.)

Selling price

The total sum you receive for the transaction inclusive of any incidental charges you make to the buyer. (If you charge the buyer for any optional services which are not directly linked to the goods, you should invoice for these outside the margin scheme.)

Margin

The difference between the purchase price and the selling price.

VAT due

Apply the VAT fraction to the margin (see paragraph 3.3).

This method mirrors the method used by auctioneers to calculate their purchase and selling prices under the auctioneers’ scheme (see Auctioneers’ Scheme (VAT Notice 718/2)).

17.5.1 How using a margin scheme helps you

If you:

  • use a margin scheme, and include your charges to the seller in the sale of the goods, then you’ll pay VAT on your margin, which will be equal to the charges you make to the buyer and the seller but you will not pay any VAT on the goods
  • do not use a margin scheme, and include your charges to the seller in the sale of the goods, then you’ll pay VAT on your charges to both the seller and the buyer, and the goods

17.6 If you sell zero-rated goods

If you’re an agent acting in your own name and you use a margin scheme, and you:

  • invoice your charges separately to the seller, then your charges will fall outside the margin scheme and will be standard-rated for VAT, regardless of the liability of the goods
  • include your charges to the seller in the sale of the goods, then the VAT liability of your services will follow that of the goods, this means that if you sell zero-rated goods, for example, antique books, your margin will also be zero-rated, in the VAT due column of your stock record, you should insert ‘nil’

17.7 Records you need to keep

If you issue invoices in your own name for the margin scheme sales you make as an agent, you must keep the records described in section 5.

You must make sure they give you an invoice which includes all the details described at paragraph 5.3. That person’s selling price should follow the rules at paragraph 17.4, if you sell goods on behalf of someone who’s:

  • registered for VAT
  • using a margin scheme themselves

If you sell goods on behalf of someone who is not registered for VAT, you must make out the invoice yourself.

18. Pawnbrokers and the margin scheme

18.1 Can you use a margin scheme when you sell unredeemed pawns

Only in these specific circumstances, if the:

  • loan is for £75 or less, and you adopt the statutory 6 month redemption period, then ownership of the pledge passes to you if it is not redeemed within that time limit, if you dispose of the goods to a third party, there will be VAT on the sale
  • goods are eligible, and you can meet all the other conditions of the scheme, then you may account for the sale under the margin scheme or the global accounting acheme

18.2 Your purchase price for the margin scheme

If you use a margin scheme for goods described in paragraph 18.1, your purchase price will be the amount which would be needed to redeem the pawn, that is the amount of the loan plus the initial 6 months interest payable minus and any payments received from the pledgor.

You must not add any interest relating to the 3 month period of grace to the purchase price or other items such as:

  • cleaning
  • repair charges
  • storage and other overhead expenses

18.3 What to use as your purchase invoice

You may use the ‘Credit Agreement and Pawn Receipt’ as your purchase invoice, if you wish, provided:

  • the contract number is entered in your pledge stock record and cross refers to the agreement
  • a copy of the interest calculations and total purchase value for margin scheme purposes is attached, if it differs from the amount shown on the receipt

18.4 Circumstances where you cannot use a margin scheme

18.4.1 Pledges restored during the period of grace

If you restore the pledge to the pledgor during the period of grace, there will be no VAT on the supply provided you:

  • record the redemption in your pledge stock records
  • stamp the ‘Credit Agreement and Pawn Receipt’ with the date of redemption and keep it for inspection by HMRC

You cannot account for the restoration of the pledge under the margin scheme or the global accounting scheme, so you’ll need to adjust your purchase record if you’ve already entered the items in your scheme records.

18.4.2 Pledges where ownership of the goods does not pass to you

If the loan exceeds £75, or the redemption period has been agreed for a time longer than the usual 6 months, then ownership of the pledge does not pass to you at the end of the redemption period. There will be no VAT on the sale of the pledged goods if you dispose of them to a third party, so you cannot use a margin scheme when you sell them.

You may sell these goods at auction on the pledgor’s behalf, and the auctioneer can use the auctioneers’ scheme provided that the:

  • pledgor is not VAT-registered
  • goods are eligible
  • conditions are met

However, it’s important to be aware that there will be VAT on the sale, if the:

  • pledgor is registered for VAT
  • pledge is something they acquired in the course of business

You must follow the procedures for accounting for VAT on goods sold in satisfaction of a debt described in VAT guide (VAT Notice 700).

19. Dealers in second-hand caravans and houseboats and the margin scheme

19.1 Use the margin scheme for caravans and houseboats

It depends on the VAT liability of the caravan or houseboat you’re selling.

If you sell:

  • a second-hand caravan or houseboat which is zero-rated, then you may use the margin scheme for the sale of any standard-rated fixtures or removable contents
  • second-hand boats which are not houseboats, or second-hand caravans which do not meet the criteria for zero rating, then you may use the margin scheme to account for VAT on the sale

You can find further information in Caravans and houseboats (VAT Notice 701/20).

20. Definitions

20.1 Definitions of eligible goods

For the purposes of the schemes in this notice, the words and phrases have the following meaning:

Second-hand goods

Tangible moveable property that is suitable for further use as it is or after repair, other than works of art, collectors’ items or antiques and other than precious metals and precious stones.

Works of art

1. ‘Work of art’ means, subject to subsections 2 and 3

(a) any mounted or unmounted painting, drawing, collage, decorative plaque or similar picture that was executed by hand

(b) any original engraving, lithograph or other print which:

(i) was produced from one or more plates executed by hand by an individual who executed them without using any mechanical or photomechanical process, and

(ii) either is the only one produced from the plate or plates or is comprised in a limited edition

(c) any original sculpture or statuary, in any material

(d) any sculpture cast which:

(i) was produced by or under the supervision of the individual who made the mould or became entitled to it by succession on the death of that individual, and

(ii) either is the only cast produced from the mould or is comprised in a limited edition

(e) any tapestry or other hanging which:

(i) was made by hand from an original design, and

(ii) either is the only one made from the design or is comprised in a limited edition

(f) any ceramic executed by an individual and signed by him

(g) any enamel on copper which:

(i) was executed by hand

(ii) is signed either by the person who executed it or by someone on behalf of the studio where it was executed

(iii) either is the only one made from the design in question or is comprised in a limited edition, and

(iv) is not comprised in an article of jewellery or an article of a kind produced by goldsmiths or silversmiths

(h) any mounted or unmounted photograph which:

(i) was printed by or under the supervision of the photographer

(ii) is signed by them, and

(iii) either is the only print made from the exposure in question or is comprised in a limited edition.

2. The following do not fall within the definition of works of art

(a) any technical drawing, map or plan

(b) any picture comprised in a manufactured article that has been hand-decorated, or

(c) anything in the nature of scenery, including a backcloth.

3. An item comprised in a limited edition shall be taken to be so comprised for the purposes of subsection 1(d) to (h) only if

(a) in the case of sculpture casts:

(i) the edition is limited so that the number produced from the same mould does not exceed 8, or

(ii) the edition comprises a limited edition of nine or more casts made before 1 January 1989 which the Commissioners have directed should be treated, in the exceptional circumstances of the case, as a limited edition for the purposes of subsection 1(d)

(b) in the case of tapestries and hangings, the edition is limited so that the number produced from the same design does not exceed 8

(c) in the case of enamels on copper:

(i) the edition is limited so that the number produced from the same design does not exceed 8, and

(ii) each of the enamels in the edition is numbered and is signed as mentioned in subsection 1(g)(ii),

(d) in the case of photographs -

(i) the edition is limited so that the number produced from the same exposure does not exceed thirty, and

(ii) each of the prints in the edition is numbered and is signed as mentioned in subsection 1(h)(ii).

Collectors’ items

Collections and collectors’ pieces of zoological, botanical, mineralogical, anatomical, historical, archaeological, palaeontological, ethnographic, numismatic or philatelic interest.

A collector’s piece is of philatelic interest if:

(a) it’s a postage or revenue stamp, a postmark, a first-day cover or an item of pre-stamped stationery, and

(b) it’s franked or (if unfranked) it is not legal tender and is not intended for use as such.

Note: unfranked stamps which are valid for postage are not collectors’ items and cannot be included in the margin schemes, that is, stamps on which the value is:

  • in decimal currency
  • currently valid for first or second class postage
  • £1, or a multiple of £1, of the present monarch’s reign

Antiques

Antiques means objects other than works of art or collectors’ items which are more than 100 years old.

20.2 Definitions of ineligible goods

Precious metals

Goods (including coins) consisting in precious metals or any supply of goods containing precious metals where the consideration for the supply (excluding any VAT) is, or is equivalent to an amount which does not exceed the open market value of the metal contained in the goods.

For gold coins sold at or below the open market value (that is the daily ‘fix’ price) the special accounting and payment system for gold transactions applies. Further details can be found in Gold acquisitions, imports and investments (VAT Notice 701/21).

Investment gold

Gold coins which meet the definition of investment gold are not considered of numismatic interest and are not eligible for the margin schemes. Further details about investment gold can be found in Investment gold coins (VAT Notice 701/21A).

Precious stones

Precious stones of any age which are not mounted, set or strung. For the purposes of the margin schemes, precious stones are diamonds, rubies, sapphires and emeralds.

Your rights and obligations

Read Your Charter to find out what you can expect from HMRC and what we expect from you.

Help us improve this notice

If you have any feedback about this notice email: customerexperience.indirecttaxes@hmrc.gsi.gov.uk.

You’ll need to include the full title of this notice. Do not include any personal or financial information like your VAT number.

If you need general help with this notice or have another VAT question you should phone our VAT helpline or make a VAT enquiry online.

Putting things right

If you are unhappy with HMRC’s service, contact the person or office you’ve been dealing with and they’ll try to put things right.

If you are still unhappy, find out how to complain to HMRC.

How HMRC uses your information

Find out how HMRC uses the information we hold about you.

Published 4 April 2017