If you purchase or sell second hand goods, you could use a VAT margin scheme.
Those that frequently trade in second hand goods such as car dealerships, antiquities, or even livestock such as horses, may be aware of such a margin scheme and how they can use it, however you might not be aware that even if you only occasionally buy or sell second hand products you could use a margin scheme too.
When does a VAT margin scheme apply?
A VAT margin scheme applies on the difference between the price you pay for items and the price you sell them for. Even if on face value you don’t think you sell or buy second-hand goods, this scheme is still applicable for the purchase or sale of second hand items you may use for business such as cars, vans, machinery, office equipment and furnishings. This relief is only applicable if the items are already second hand when you purchase them, not if they are purchase brand new and sold by yourself in a second hand condition.
Your purchases that may qualify are likely to have been bought from a private individual, a dealer in second hand items or another business where it bought the item in a used condition before selling it to you and applied the margin scheme.
If you purchase a second hand item from another VAT registered business or seller, if they don’t issue you with a VAT receipt or invoice then they may have used the margin scheme. Confirm this with them.
You can ask the seller to change the sale to be one that is outside the margin scheme. This won’t affect them adversely and in more cases than not, gives them a cashflow advantage. Although this will temporarily increase the total price for your purchase, it will be less once you have reclaimed the VAT cost.
For items you purchased second hand and on which you weren’t entitled to reclaim VAT, you can use the VAT margin scheme when selling that item. If you sell it for a price less than you paid for it then you don’t have to charge VAT. But if the price you sell it as is more than you purchased it for, you must add the VAT on the margin only.
There is further information at https://www.gov.uk/vat-margin-schemes, but to discuss you’re purchasing and selling strategy and ways for you to save on VAT, contact SFB Group on 03333 444 171 or enquiries@sfb.group.
