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HMRC internal manual

VAT Margin Schemes

Imports and exports

What does this section cover?

This section, together with Notice 718 The VAT Margin Scheme and global accounting, covers imports and exports of eligible goods for all three schemes referred to in this guidance.

The terms imports and exports apply to third country purchases and sales respectively and not to intra-EC transactions.

Further information on imports and exports can be found in:

VATMARG08300 and VATMARG08350 contain guidance on importing second-hand cars and indirect exports of second-hand cars.

Exporting margin scheme goods

For the purposes of the margin schemes, goods which are exported should be dealt with as follows:

  • margin scheme - supplies are eligible for zero-rating providing the conditions of Notice 703 are met;
  • global accounting - exported goods can be sold outside the scheme (see VATMARG03400) provided the conditions of Notice 703 are met;
  • auctioneers’ scheme - where an auctioneer is acting as principal for the supply of goods for export and he sells the goods outside the scheme, the supply may be zero-rated if the conditions for zero-rating an export can be met as detailed in Notice 703. If the auctioneer belongs in the UK, his services to the buyer will normally be standard rated. (Where there is a separate charge for providing or arranging services such as packing and exporting the goods to a country outside the EC, those services may be zero-rated under Item 2(a) of group 7 to Schedule 8 of the VAT Act 1994).

Auctioneers using the margin schemes

If the auctioneer supplies goods for export under the margin schemes, there will still be a supply of both goods and services with VAT being due on the profit margin of the combined supplies, the liability of which will, in effect, be the same as that of the goods.

In most cases the supply will be zero-rated, provided that the auctioneer is able to meet the appropriate conditions laid down in Notice 703.

Supply of services

Any supply of services which would be standard-rated if the goods were supplied outside the scheme will likewise be zero-rated if the goods are supplied for export under the scheme and the conditions laid down in Notice 703 have been met.

It is important to appreciate that, for goods supplied under the scheme, only the supply by the auctioneer is eligible for zero rating as an export; the initial supply by the vendor to the auctioneer is not eligible.

VATMARG08350 explains the procedure for indirect exports of second hand vehicles.

Option to use the scheme for imported works of art, antiques and collectors’ items

Normally, imported goods which are subject to VAT on their full value are not eligible for sale under the margin schemes. However, the margin scheme or the auctioneers’ scheme can be used for:

  • works of art, antiques and collectors’ items imported from third countries; and
  • works of art obtained from the artist or his heirs from member-states, including the UK,

even though VAT will have been charged on their importation, acquisition or supply.

A dealer can opt to use the margin scheme or the auctioneers’ scheme for such goods. Under either option, any eligible items must be imported directly by the trader or auctioneer concerned.

For the purposes of the auctioneers’ scheme, an auctioneer must have imported the goods himself (as principal on behalf of a third party) for onward sale in his own name.

Certain works of art, antiques and collectors’ pieces are entitled to a reduced rate of VAT at importation, currently 5%. (The reduced rate is reached by calculating a value for duty using the appropriate duty method, adding any additional costs and multiplying the total by 28.58%. Applying the rate of VAT, currently 17.5%, gives an effective VAT rate of 5%.)

What are the conditions for using the margin or auctioneers’ scheme option?

The trader or auctioneer must exercise the option at least two years, and must notify the National Advice Service in writing, specifying the date when the option is to apply. After this period, the trader or auctioneer must notify the National Advice Service if and when they wish to cease using the scheme.

The option to use a scheme must be taken up in respect of all transactions and goods listed above, not just in respect of certain categories of transactions or certain categories of goods.

If, having exercised the option, a trader or auctioneer sells any goods covered by the option outside a scheme, he cannot recover any input tax on those goods until the period in which the sale is accounted for, in accordance with regulation 29 (1) of the VAT Regulations 1995.

If the option to use the margin scheme or auctioneers’ scheme is not taken up, VAT must be accounted for in the normal way.

Notice 718 explains both options in more detail and also provides examples of how the schemes will apply in certain circumstances.