The VAT Second Hand Margin Scheme is one of the more complicated VAT schemes available to small businesses in the UK. When trying to decide whether you need to include all your sales in the VAT second hand margin scheme unfortunately the answer is maybe!
The first thing you need to remember is that the Second Hand Margin Scheme is not an all or nothing scheme, in other words if you make a sale that meets all the conditions for the VAT margin scheme then you can use it. If not, you must account for VAT in the normal way.
Once you have decided that you are eligible to use the VAT margin scheme then you need to check whether each sale you make meets the conditions of the scheme as set out by HMRC.
The Main Conditions of Using the Second Hand Margin Scheme
The main ones as per HMRC are:
- the goods must be eligible (second hand goods, antiques or works of art);
- you must have acquired the goods in eligible circumstances. In most cases, this means that you obtained the goods for resale in circumstances where you could not claim any VAT back (the most likely scenario is you bought your item from an individual);
- you must calculate the margin in accordance with the rules of the scheme. There are special rules about how to calculate your buying price, your selling price and your margin under the schemes. The margin you calculate under the scheme may not be the same as your profit margin (read my blog VAT Second Hand Margin Scheme: Calculating Your Margin for more info);
- you must meet the record keeping rules of the scheme.
If all your sales meet these conditions for both your item purchase and onward sale, then all your sales will meet the criteria of the VAT Second Hand Margin Scheme so you can apply the scheme (if you wish). However if you have sales that do not meet the rules of the scheme then you need to apply the rules of the Standard VAT Scheme – deducting or adding 20% from the amount you sell your item at.
You need to decide at the time of each sale whether you are going to apply to VAT Margin Scheme or Standard Scheme because you cannot go back at a later date and switch schemes. Your sales invoice must reflect your choice of sale at the tax point.
The VAT Margin Scheme is complicated but HMRC are a good source of help for your individual circumstances and you can call them on 0300 200 3700.