VAT Margin Scheme and Auctioneers’ Scheme
Under a VAT margin scheme, VAT is calculated on the dealer’s margin rather than the full selling price. For a dealer buying goods from private individuals or other suppliers who did not charge recoverable VAT, that can fundamentally change the economics of the transaction.
But margin treatment depends on more than the type of goods. Eligibility, purchase history, invoicing and record keeping all matter. If the scheme conditions are not met, VAT can instead become due by reference to the full selling price.
How the calculation works
Under the ordinary margin scheme, VAT is due on the difference between the qualifying purchase price and selling price.
Costs such as restoration, repair, transport and storage do not normally increase the purchase price for the margin calculation. Where those costs carry VAT, the VAT may instead be recoverable separately under the normal input-tax rules, subject to the usual conditions.
Selling at a loss
If an individual item is sold for less than its qualifying purchase price under the ordinary margin scheme, there is no positive margin on which to account for VAT. The loss on that item cannot normally be used to reduce the margin on a different profitable item.
Global Accounting works differently, because it calculates the margin across qualifying purchases and sales for the period.
Which goods qualify?
Margin schemes can apply to qualifying:
- second-hand goods
- works of art
- antiques
- collectors’ items
Each category has its own VAT meaning. The acquisition history is just as important as the description of the goods.
How did you buy it?
As a general rule, the ordinary margin scheme is intended for goods acquired without recoverable VAT — for example:
- from a private individual
- from a business that is not VAT registered
- from another dealer who sold the item under a margin scheme
- in certain other qualifying circumstances
If VAT was separately charged to you on an ordinary purchase, you would normally recover that VAT under normal accounting and account for VAT on the full selling price instead.
Special rules exist for certain imported works of art, antiques and collectors’ items, and for certain works of art acquired from their creator or the creator’s successors. Those transactions should be considered separately rather than applying the ordinary purchase rule mechanically.
Margin schemes cannot generally be used for precious metals, investment gold or precious stones.
The records HMRC will ask for
Record keeping is a condition of using the scheme, not simply an administrative preference. You must normally maintain a stock book, in written or electronic form, so that each item can be traced from purchase through to sale.
For ordinary margin-scheme goods, the stock book includes information such as:
On purchase
- unique sequential stock number
- purchase date
- purchase invoice number
- seller’s name
- description of the item
- purchase price
On sale
- sale date
- sales invoice number
- buyer’s name
- description
- selling price or method of disposal
- margin
- VAT due on the margin
The unique stock number must form part of the audit trail between the stock record and the relevant invoices.
Purchase and sales invoices
You also need compliant purchase and sales documentation. Purchase documentation contains additional information, including the parties’ details.
A margin-scheme sales invoice must contain the required wording and must not show VAT separately. The buyer therefore does not receive a separately stated VAT amount to recover as input tax.
If HMRC concludes that the margin-scheme conditions were not met, VAT can become due by reference to the full selling price rather than the dealer’s margin. For a dealer operating on a relatively thin margin, the difference can be substantial.
Global Accounting
Global Accounting is a simplified margin scheme designed for businesses dealing in large volumes of relatively low-value qualifying goods. Instead of calculating VAT item by item, the business compares total qualifying sales with total qualifying purchases for the VAT period. VAT is then calculated on the positive global margin.
Excluded goods
Certain goods cannot be dealt with under Global Accounting even where their purchase value is £500 or less:
- Aircraft
- Boats and outboard motors
- Caravans and motor caravans
- Horses and ponies
- Motor vehicles, including motorcycles, subject to specific rules
Negative margins
If qualifying purchases exceed qualifying sales in a period, no VAT is due on a positive global margin for that period. The negative margin is carried forward in accordance with the scheme rules.
The Auctioneers’ Scheme
The Auctioneers’ Scheme deals with qualifying goods sold by an auctioneer under the particular contractual structure required by the scheme. The calculation starts with the hammer price. Broadly:
- the auctioneer’s purchase price is derived from the hammer price after deducting qualifying commission charged to the seller
- the selling price is derived from the hammer price together with qualifying charges to the buyer that fall within the scheme
- the difference produces the auctioneer’s scheme margin
- VAT is calculated at one-sixth of that margin where the standard VAT rate applies
This allows the qualifying auction transaction to be dealt with by reference to the auctioneer’s margin rather than applying VAT to the full hammer price. Not every service or charge necessarily falls within that calculation — separate services can remain subject to the normal VAT rules.
The Auctioneers’ Scheme also has its own invoicing and record requirements. Auctioneers can retain the required information through a stock book or sufficient alternative records such as entry forms, catalogues, lot records and purchase and sales documentation.
The VAT treatment in the auctioneer’s terms of business, invoices and accounting system needs to agree. If one says the auctioneer acts under the scheme while another treats the transaction differently, the audit trail becomes difficult to defend.
Who we work with
We advise businesses dealing in:
- Antiques
- Second-hand furniture
- Art
- Collectibles
- Auction sales
- Classic and second-hand vehicles
- Second-hand jewellery and other qualifying goods
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