VAT Global Accounting Scheme: Calculating Your Margin

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Under the VAT Global Accounting Scheme you pay VAT at 1/6th of the difference between the number of items you sell in a quarter and the amount you spent on new purchases. 

But there are rules that you need to follow when working out each of these figures, as well as special rules if you have:

  • recently joined the scheme;
  • have stock of goods on hand.

Calculating Your Sales

It is critical you identify which of your sales are going to be included within the Global Accounting Scheme before you start selling so you can make sure you create the right paperwork.

Once this has been correctly done, then it is just a matter of adding up all your eligible sales for the quarter and deducting the cost of your eligible purchases to reach your margin for VAT purposes.

Learn More: Overview of the Global Accounting Scheme

Calculating Your Purchases

Under the Global Accounting Scheme although you don’t need to identify each individual purchase and sale you make for the purposes of working out your margin.

So if you buy in bulk you must make sure you keep the right paperwork to support each purchase you make. 

Then it is a matter of adding up all your eligible purchases for the quarter you are filing for.

You must make sure that you correctly identify your eligible sales and purchases correctly (with all the right paperwork).

In the event of an investigation where HMRC disagrees with your workings, HMRC will rework your calculations under the normal VAT scheme rules and make you pay the difference.

Learn More: Handling Purchases over £500 under the VAT Global Accounting Scheme

Calculating Your VAT Margin

Once you have your sales and purchases figures you then need to multiply the difference by 1/6th.

Here’s an example:

Sales: £20,000

Purchases £8,000

Difference £12,000 (£20,000 – £8,000)

VAT £2,000 (£12,000 * 1/6th)

If Your Purchases Exceed Your Sales

It is entirely possible that your purchases exceed your stock for example if:

  • You’ve bought purchases to hold as stock
  • You’re new to the scheme and have stock on hand already

If you find yourself in this situation where you have no VAT to pay and you must carry forward this negative margin to the next VAT quarter.

You cannot create a VAT repayment.

Again you must keep clear records of any negative amounts you are carrying forward.

Read More: VAT Global Accounting Scheme: Record Keeping & Invoices

Updated 11 April 2019