The VAT global accounting scheme is a variation of the margin scheme made available by HMRC to help businesses in the UK. Find out how the VAT Global scheme works, which businesses are eligible to join the scheme along with the benefits of doing so.
Updated 22 July 2021
Table of contents
- 1. What is the VAT Global Accounting Scheme
- 2. What are the Advantages of the VAT Global Accounting Scheme?
- 3. An Example of How the Global Accounting Scheme Works
- 4. What is the Difference Between the VAT Second Margin Scheme and Global Accounting Scheme?
- 5. How to Register for the Global Accounting Scheme
- 6. Eligible Sales & Purchases
- 7. Purchases Over £500 Under the VAT Global Accounting Scheme
- 8. Claiming VAT on Overheads
- 9. Keeping Global Scheme VAT Records
- 10. How to Calculate VAT Global Margin
1. What is the VAT Global Accounting Scheme
Under the global scheme businesses pay VAT at 16.67% (one-sixth) of the difference between the price they pay for items and what they sell them for during an entire VAT period. For this reason, it’s only available to certain types of businesses including those that sell:
- second-hand goods
- works of art
- antiques, or
- collectors’ items
2. What are the Advantages of the VAT Global Accounting Scheme?
When a business registers for VAT they’ll generally need to follow the rules of the standard VAT scheme. This means they will claim back VAT on expenses and add VAT at the standard rate of 20% to everything they sell (other VAT rates exist for specialist businesses). If a business sells to other VAT registered businesses, then this is fine because VAT is not a cost to them
However, some second-hand goods businesses often buy and sell from businesses that are not VAT registered or to consumers. That means that once they reach the VAT threshold of £85,000, they’ll need to start charging VAT on all their sales. This can present a real problem to some second-hand businesses because once VAT registered they will have to:
- Add VAT to their sales prices may make them uncompetitive in the marketplace;
- Take VAT out from their sales price which will erode margins all because they’ve reached the VAT registration threshold.
HMRC introduced the VAT margin scheme and global scheme to help businesses affected in this way to stop their profits suffering as a result of growing and needing a VAT registration.
Unsure how VAT works? Read this guide to VAT.
3. An Example of How the Global Accounting Scheme Works
You run a second-hand business and are registered for VAT. In your VAT period you make sales of £10,000 to individuals (not VAT registered) and purchases of £6,000 (no input VAT).
Using the VAT Global Accounting Scheme, you will pay VAT on the different between what you have bought and sold during your VAT period of £666.67 (£10,000 – £6,000 = £4,000 *1/6th).
If you were using the standard VAT scheme you would pay VAT of £1,666.67 (£10,000 *20/120) instead.
4. What is the Difference Between the VAT Second Margin Scheme and Global Accounting Scheme?
The second hand margin scheme and global accounting scheme are similar in principle, but the global scheme is simpler to administer:
- Under the margin scheme you must work out the margin on each sale, whereas with the margin scheme you add up all eligible purchases and sales on a total basis quarter by quarter;
- With the global scheme you can include items on which you make a loss on whereas with the second-hand margin scheme you cannot set the loss of one item against the profit of another;
- You cannot use the global accounting scheme for any individual item that you purchase for over £500 whereas there is no limit for the second-hand margin schemes.
For these reasons the global accounting scheme is best suited to businesses that buy and sell in bulk and are unable to track individual sales.
5. How to Register for the Global Accounting Scheme
You don’t actually need to apply to use the VAT Global Accounting Scheme, you can just start using it. However, it’s worth noting that the rules of the scheme are very complicated and there are penalties for using it incorrectly.
6. Eligible Sales & Purchases
Only certain sales and purchases are eligible to be included in the the global scheme. Those that are ineligible will fall under the rules of the standard VAT scheme. Here is the criteria for eligibility:
- the goods must be eligible sales e.g. 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);
- if you paid VAT on the items you have purchased you cannot use the Global Scheme;
- you cannot include any costs in regards to restoration or improvements when working out your purchase price;
- individual items you have purchased for over £500 each cannot be included in the global accounting scheme (but you can use the VAT margin scheme for these items providing you meet that scheme’s criteria).
7. Purchases Over £500 Under the VAT Global Accounting Scheme
Individual items that you have purchased for over £500 each cannot be included in the global accounting scheme (but you can use the VAT margin scheme for these items providing you meet this schemes criteria). But there may be scenarios where you have bought collections of goods or combined items to resale where the individual value is under £500. In these cases here are the rules you need to follow:
|you split collections of items, such as stamp collections, and either sell the items separately or use them to form other collections||you can account for those sales under Global Accounting, provided all the items are eligible.|
|you purchase an eligible item for £500 or more, and the item is made up of several components valued at less than £500, but you sell the component items individually (For example, you purchase a tea set for £600 and you sell the cups and saucers individually for £50 each.)||you can account for the sales under Global Accounting.|
|you purchase an eligible item for £500 or more, and the item is made up of several components valued at less than £500, and you sell the item in the same state as it was purchased (For example, you purchase the tea set for £600, but you sell it on as a tea set.)||you can not account for the sale under Global Accounting. You may account for the sale under the Margin Scheme, provided you can meet the recordkeeping requirements.|
|you combine two or more items to produce only one item for resale, (For example, you use one item as a spare part for another.)||you can account for the sale under Global Accounting.|
|you buy eligible items and use them to produce something which is not eligible (For example, you buy second-hand fabrics and trimmings and make them into cushion covers.)||you can not account for the sale under either Global Accounting or the Margin Scheme, you must sell the item under the normal rules and account for VAT on the full selling price.|
8. Claiming VAT on Overheads
The VAT Global Accounting Scheme is not an all or nothing type scheme, so it doesn’t necessarily need to apply to all of your sales and purchases. If you have paid out for VAT on overheads, like rent or marketing, then you can still claim this VAT back.
This does mean you’ll need to calculate two sets of VAT figures and add them together for each VAT return you submit – one for sales/purchases under the VAT Global Accounting Scheme and another for everything that falls into the Standard VAT Scheme (and keep the right records for each scheme).
9. Keeping Global Scheme VAT Records
When a business uses the global scheme, they’ll need to keep VAT records in accordance with the standard VAT scheme, especially if you are intending to claim back VAT on overheads as well as global scheme VAT records. Unfortunately, HMRC is a bit vague in their requirements but you need to have records which:
- Are kept separately from standard VAT records;
- Shows how you’ve reached a;; the figures you have included in your VAT returns;
- Demonstrate how you calculated your margin and tax due.
VAT records must be kept for 6 years.
9.1 Purchase Invoices
Every time you buy goods which are eligible for the Global Accounting Scheme the follow details must be included on purchase invoices:
- business name and address;
- seller’s name and address;
- invoice number;
- the date of the transaction;
- a description of goods which must be sufficient to show that the goods are eligible for the global accounting scheme, not just a generic description;
- a total price – VAT must not be shown separately.
If you are buying for another business who also uses the global accounting scheme, then they should provide you with a purchase invoice but if you are buying from a private individual you may need to raise your own purchase invoice for your VAT records on the sellers behalf.
9.2 Sales Invoices
What you need to include depends on who you are selling to:
If you sell to other VAT Registered Dealers
You must always issue a sales invoice when you sell to another VAT registered dealers which shows the following details:
- your name, address and VAT registration number
- the buyer’s name and address
- invoice number
- date of sale
- a description of goods which must be sufficient to show that the goods are eligible for the global VAT scheme, not just a generic description;
- total price including VAT (you must not show VAT separately);
- the statement “Global Accounting Invoice”.
If you sell to the General Public
If your business turnover comes from cash sales, for example using a cash register then you need to:
- Make sure you have a system that clearly identifies sales to be included in the global scheme from any other sales you make;
- Keep copies of takings summaries, till rolls etc to support your sales as part of your VAT records;
- Have a clear audit trail from these sales to your VAT records
In both cases however you must make sure that your initial purchase meets the criteria for the global VAT scheme.
10. How to Calculate VAT Global Margin
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 global VAT scheme;
- have stock of goods on hand.
10.1 Calculating Sales
Once you’ve identified which sales are eligible to be included in the global scheme, you just need to add up the total for your VAT period.
10.2 Calculating Purchases
Under the global scheme for VAT 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 period you are filing your VAT return for.
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.
10.3 Calculating VAT Margin
Once you have your sales and purchases figures you then need to multiply the difference by 1/6th.