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HMRC internal manual

VAT Margin Schemes

Specific circumstances: Use of the scheme by pawnbrokers

Pawns under £75 in value Pawnbrokers can use the margin scheme or global accounting for sales of unredeemed pawns, not exceeding £75 in value, to which they have taken title at the end of the six month redemption period. (If the loan period is over 6 months, the pawnbroker does not take title to the goods). The margin scheme conditions set out in

VATMARG02150 must be met; but we have agreed with the National Pawnbrokers Association that the credit agreement and pawn receipt are acceptable as a purchase invoice, provided:

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

Purchase price of eligible pawns The purchase price for the purpose of the margin scheme will be the amount of the loan plus the initial six months’ interest payable, less any payments received. Items such as auctioneers’ fees, cleaning and repair charges, storage and overheads

cannot be added to the purchase price.

Most pawnbrokers allow a period of grace, usually 3 months, after the six-month redemption period, during which time the pledgor may redeem the goods.

Restoration to the pledgor during this period is treated as a non-supply under the VAT (Treatment of Transactions) Order 1996. The supply cannot be dealt with under the margin scheme or global accounting; and the pawnbroker will need to adjust his purchase record if he has already entered the items in his scheme records.

Pawns over £75 in value When a pledge for a loan

over £75 in value is not redeemed within the agreed period, ownership does not pass to the pawnbroker.

When he sells the unredeemed goods, he is not acting as an agent of the pledgor, as the goods are sold in satisfaction of a debt under a separate agreement between the pawnbroker and the pledgor, which is regulated by the Consumer Credit Act.

These transactions cannot be dealt with under the margin scheme or global accounting, as there is no taxable supply (and no VAT is due) unless the pledgor is a taxable person and acquired the goods in the course of his business.

Pawns over £75 in value sold at auction The pawnbroker may sell these goods at auction on behalf of the pledgor: in which case the auctioneer can use the auctioneers’ scheme, provided the pledgor is not VAT registered, the goods are eligible and the conditions are met.

In some cases, the pawnbroker may buy these goods at auction himself and use the margin scheme for the onward sale. In this case, the pawnbroker’s purchase price, for the purpose of the scheme, will be the total price shown on the auctioneer’s invoice for goods and services supplied to him under the auctioneers’ scheme (that is, buyer’s premium or other charges integral to the supply of the goods).