VAT margin schemes tax the difference between what you paid for an item and what you sold it for, rather than the full selling price. You pay VAT at 16.67% (one-sixth) on the difference.

You can choose to use a margin scheme when you sell:

• second-hand goods,
• works of art,
• antiques,
• collectors’ items.

You can’t use a margin scheme for:

• any item you bought for which you were charged VAT,
• precious metals,
• investment gold,
• precious stones.

HMRC quote the following example to illustrate how the scheme works in practice:

If you purchased a work of art for £1,500 and sold it for £2,000. Using a margin scheme, you would pay VAT at 16.67% (one-sixth) on the difference, the margin, of £500. This means you would pay £83.33 in VAT.

You can start using a margin scheme at any time, but you will need to keep correct records, and then report the transactions appropriately on your VAT return. You are not required to formally register for the scheme.

If you don’t meet all of the schemes requirements you will have to pay VAT on the full selling price of each excluded item.

Readers should note that there are special rules if you’re selling:

• second hand cars
• horses and ponies
• houseboats and caravans

And if you are selling high volume, low price items you could consider using the Global Accounting Scheme, a simplified version of the margin scheme.

There are also special rules to consider if you are a dealers, pawnbrokers or auctioneers.

Source: New feed