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HMRC internal manual

VAT Margin Schemes

From
HM Revenue & Customs
Updated
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Non-compliance by businesses using the schemes

This section applies to businesses who are already using the margin scheme, auctioneers’ scheme or global accounting.

Incomplete records

HMRC has the discretion to impose record-keeping requirements in a notice, but has no discretion to vary those requirements in an individual case. If a trader fails to keep the prescribed records, he forfeits his right to opt to use the margin scheme in relation to those transactions not properly recorded. Subject to the advice in the paragraphs below on Unsatisfactory records(This content has been withheld because of exemptions in the Freedom of Information Act 2000) , this means that tax on those supplies is due on the full selling price and not on the margin.

 

Minor non-compliance with record keeping requirements

(This content has been withheld because of exemptions in the Freedom of Information Act 2000) Notice 718 The VAT(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

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Specimen letter to a second-hand dealer found to have defective records

During the course of my visit on (date of visit) I explained to (name of director, secretary, proprietor, nominated official) that Value Added Tax is normally charged on the full value of supplies of goods. However, in the case of second-hand goods, the law provides that tax need be charged only on the margin between the dealer’s buying and selling prices, provided that certain conditions are met.

The additional records and other conditions which have to be complied with are described in detail in Notice 718: a copy was given to you during my visit / is enclosed. You will see that an up-to-date stock book is essential, and that it must be supported by purchase and sales invoices.

If these records are not kept and produced to HM Revenue and Customs, VAT is due on the full selling price of the goods.

However, on this occasion although you have not met all the record keeping requirements, I am satisfied from supporting documents and other records that the margin declared is acceptable.

or

On this occasion I am prepared to allow you insert period to bring your records up to date. Subject to further verification, VAT can then be charged on the margin for all transactions where acceptable supporting evidence has been produced.

In future, any failure to maintain the proper records will lead to VAT being charged on the full value of any second-hand goods not fully recorded and documented as required.

Yours faithfully,

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Unsatisfactory records

If the non-compliance is serious or you are unable to verify the margin, consider if there are any reasons to assess immediately, such as time limits.

If not, give the trader the opportunity to reconstruct the records and warn that failure to do so may result in VAT being assessed on the full selling price of the goods. The trader is always to be given a reasonable amount of time to reconstruct the records; but in any event no longer than three months should be allowed.

Following reconstruction of records, if there is minor non-compliance, the margin may be accepted where you have no reason to doubt that it is correct.

Any schedules or information relevant to the reconstruction of records must normally be given to the trader. The only exceptions are cases where disclosure may prejudice the outcome of a fraud investigation - for example where investigations are not complete, or where enquiries are to be made into the affairs of associated companies.

Unsatisfactory evidence

If you are not satisfied that the evidence produced by the trader proves the true margins for some or all eligible transactions, any assessments are to be calculated in accordance with the following paragraph (subject to VATMARG08150 in the case of vehicle sales). When satisfactory evidence is not produced, tax is payable on the full value.

 

Calculating assessments

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