Supplies of second-hand goods can be treated in the same way as supplies of new goods. However, to avoid double taxation on goods which have already borne tax, there are special schemes for some categories of goods which allow VAT to be charged on the “value added” amount. This is achieved by calculating VAT on the amount by which the selling price exceeds the purchase price - the margin - instead of charging VAT on the full selling price.
There are a number of schemes for second-hand goods:
- the margin scheme for second-hand goods, works of art, antiques and collectors’ items;
- the global accounting scheme (a simplified method of operating the margin scheme); and
- the auctioneers’ scheme.
These schemes, known collectively as margin schemes, were introduced on 1 January 1995 (1st June 1995 for the auctioneers’ scheme) as a result of the implementation of the Seventh VAT Directive, now incorporated into the Principal VAT Directive at Articles 312 - 341. The EC margin scheme replaced UK second-hand schemes which existed before 1 January 1995.
Use of the margin schemes
Use of the schemes is optional; but businesses who use them must keep certain records and comply with other conditions, as laid down in Notice 718 The VAT Margin Scheme and global accounting.
Normally, goods obtained bearing VAT on their full value are not eligible for the margin schemes.