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HMRC internal manual

VAT Margin Schemes

From
HM Revenue & Customs
Updated
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Specific circumstances: Disposals by insurance companies and finance houses

 

Certain goods sold by insurance companies or finance houses are treated as neither a supply of goods nor a supply of services in line with the VAT (Special Provisions) Order 1995 (S.I. 1995/1268) Article 4 which states:

Treatment of transactions

Article 4. - (1) Each of the following descriptions of transactions shall be treated as neither a supply of goods nor a supply of services –

(a) the disposal of any of the goods described in paragraph (3) below by a person who repossessed them under the terms of a finance agreement;

(b) the disposal of any of the goods described in paragraph (3) below by insurer who has taken possession of them in settlement of a claim under a policy of insurance;

(c) the disposal of a boat by a mortgagee after he has taken possession under the terms of a marine mortgage;

(d) the disposal of an aircraft by a mortgagee after he has taken possession thereof under the terms of an aircraft mortgage;

if, in each case, the goods so disposed of are in the same condition at the time of disposal as they were when they were repossessed or taken into possession, as the case may be, and if a supply of them in the United Kingdom by the person from whom in each case they were obtained would not have been chargeable with VAT on less than the full value of each supply.

(2) …

(3) The goods referred to in subparagraphs (a) and (b) of paragraph (1) above are as follows:

(a) works of art, antiques and collectors’ items;

(b) second-hand goods.

Article 12(3)(iii) of this order allows such items to be resold using the scheme, provided the goods are eligible and the following conditions are met:

  • the trader must be registered for VAT;
  • the purchase invoice for the goods must not show VAT separately;
  • the trader does not issue a VAT invoice or other invoice which shows VAT separately for the sale of the goods; and
  • all the record-keeping requirements are met.

Goods which do not qualify for relief under Article 4(1)(a) If second-hand repossessed goods, originally sold under the margin scheme, do not qualify for treatment under Article 4(1)(a) of the VAT (Special Provisions) Order or the VAT (Cars) Order, because there has been repair or refurbishment work done on them prior to the second sale, the finance company can make the second sale under the margin scheme. The purchase price for the purpose of calculating the margin will be the original price paid by the finance company to the dealer. In most cases the margin will be nil as the selling price will be less than the original price paid to the dealer.