Margin Scheme – Second-Hand Goods

Please be aware of the legal requirements of this scheme – if in doubt, consult your accountant.

It is advisable to use a VAT code that is not the standard (usually 1). All margin scheme invoices – sales and purchase should be posted to this code – at the standard rate. Sales invoices are raised in the usual way but VAT is not shown and the Sales Parameters will need to be amended to produce VAT inclusive invoices – You will also need to amend the stationery layout. Purchase invoices are either inclusive of VAT where an invoice from a VAT registered supplier is provided or have no VAT where from a non–VAT registered supplier( These are coded to VAT code N).   All purchase invoices should be entered using the margin code except for non-cost of sales which should be entered at the appropriate rate. Sales or purchases of other non-margin products should be VAT coded as appropriate. The designated VAT code (at the standard rate) will produce figures on the VAT analysis reports for outputs and inputs. At the end of the VAT period you will need to create a dummy VAT adjustment account in the sales ledger and purchase ledger and post entries as follows –

1. Post a credit note to the dummy account in the sales ledger for the VAT amount of the purchases and date it the last day of the VAT period – either as a VAT only invoice or add any amount and post the net to the suspense account and use the Margin VAT code . Then post an invoice to the same dummy account for the gross amount and post to VAT code N.

1. Post a credit note to the dummy account in the Sales ledger for the VAT amount of the purchases and date it the last day of the VAT period – either as a VAT only invoice or add any amount and post the net to the suspense account and use the Margin VAT code . Then post an invoice to the same dummy account for the gross amount and post to VAT code N.
2. Post a credit note to the dummy account in the Purchase ledger for the VAT amount of the purchases and date it the last day of the VAT period – either as a VAT only invoice or add any amount and post the net to the suspense account and use the Margin VAT code . Then post an invoice to the same dummy account for the gross amount and post to VAT code N.

Accounting Example- 1. Credit £500 – VAT account + Credit £2500 to Suspense account Debit £3000 to Suspense account – match and clear balance in sales ledger account.

2. Debit £500 – VAT account + Debit £2500 to Suspense account Credit £3000 to Suspense account – match and clear the balance in purchase ledger account.

This will have the effect of moving the input element from Box 4 to box 1.

You may be required to keep a stock book, particularly if selling expensive items – please seek advice.

If you sell lots of small items .e.g. Vinyls and collectibles, you may benefit from the Global Accounting scheme – again, seek advice. See also https://help.prelude.software/knowledge-base/other-schemes-and-arrangements/

An extract from HMRC website – VAT Margin Schemes

Buying

When you buy something you plan to sell under a margin scheme, you must get an invoice from the seller that includes:

• date
• seller’s name and address
• your name and address, or that of your business
• the item’s unique stockbook number (if you bought the item from another VAT-registered business)
• invoice number (unless you made out the purchase invoice yourself)
• item description
• total price – you must not add any other costs to this price
• if you bought the item from another VAT-registered business, any of the following phrases: ‘margin scheme – second hand goods’, ‘margin scheme – works of art’ or ‘margin scheme – collectors’ items and antiques’

Selling

When you sell something you plan to claim for under a VAT margin scheme, you must give the buyer an invoice that includes:

• date
• your name, address and VAT registration number
• the buyer’s name and address, or that of their business
• the item’s unique stock book number
• invoice number
• item description
• total price – you must not show VAT separately
• any of the following phrases: ‘margin scheme – second hand goods’, ‘margin scheme – works of art’ or ‘margin scheme – collectors’ items and antiques’

Filling in your VAT return

• Box 1 – Include the output tax due on all eligible goods sold in the period covered by the return.
• Box 6 – Include the full selling price of all eligible goods sold in the period, less any VAT due on the margin.
• Box 7 – Include the full purchase price of eligible goods bought in the period.

You don’t have to include margin scheme purchases or sales in boxes 8 and 9 of your VAT return.