VAT Margin Scheme & Horses

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If you are in the business of buying and selling second hand horses and are facing, or already are, VAT registered.  Then the second hand margin scheme could work out to be financially beneficial for your business.

How Does the VAT Margin Scheme Work

Normally a VAT registered business will reclaim VAT on everything they purchase and add VAT To everything they sell, which is fine if they buy and sell goods to/from other VAT registered businesses. However if you operate a second hand goods business, you may be buying & selling used goods to & from individuals who are probably not VAT registered.

As a business you are required to register for VAT once your turnover reaches the VAT registration threshold (for 2018/2019 this is £85,000) meaning you’ll face two challenges if you buy and sell from the general public:

  • Adding VAT to your sales price may make you uncompetitive in the marketplace;
  • Taking VAT out from your sales price will erode your margins all because you have had reached the VAT registration threshold.

The VAT Margin Scheme can really benefit business affected by the above challenges: under the rules of the scheme you pay VAT at 16.67% (or 1/6th) of the difference between what you bought the item for and what you sold it for (rather than the standard rate of 20% on the sales price).

An Example of the VAT Margin Scheme

You buy & sell horses and buy a horse for £15,000 from an individual (not VAT registered), then sell it for £25,000 to another individual (also not VAT registered).  Using the margin scheme, you will pay VAT on the difference between you bought & sold the horse at, £10,000.  Therefore you will pay VAT of £1,666.67.

If you were using the Standard VAT Scheme you would have had to either increase your selling price to £30,000 to cover VAT, making you potentially uncompetitive or take VAT of £4,166.67 out of your selling price. As you can see, the VAT margin scheme is very beneficial to second hand businesses who sell to individuals.

Joining the Second Hand Margin Scheme

You don’t actually need to register to use the Second Hand Margin Scheme, you just start using it.  That being said, it is your responsibility to make sure you are eligible to use the scheme so it is advisable to seek professional advice before you adopt it.

Second Hand Horses Only!

A horse of pony which was owned previously by someone else is classified as second hand.  You cannot include horses which you have bred yourself and are selling for the first time, regardless of how much work or expense you have put in to preparing it for sale.

Record Keeping

I have written more about the details of the Second Hand Margin Scheme and you can find this information on my blog.  However if you deal in second hand horses you must make sure that every time you sell a horse that you wish to include in the Second Hand Scheme you include the following information on sales invoices, purchases invoice and your stock book:

  • unique identifying passport number
  • colour
  • sex
  • type or breed (for example, cob or thoroughbred)
  • age (if known)
  • height
  • stable name (if known), and
  • distinctive markings