Operating the margin scheme

Produced by Tolley
Operating the margin scheme

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Operating the margin scheme
  • Calculating the purchase price
  • Procedure for buying goods
  • Input tax
  • Calculating the selling price
  • Procedure for selling goods
  • Calculating the margin
  • Books and records
  • Stock books
  • Goods purchased on sale or return
  • More...

IP COMPLETION DAY: 11pm (GMT) on 31 December 2020 marked the end of the Brexit transition / implementation period entered into following the UK’s withdrawal from the EU. At this point in time, key transitional arrangements came to an end and significant changes began to take effect across the UK’s VAT and customs regime. This document contains guidance on subjects potentially impacted by these changes. Before continuing your research, see the Brexit — overview guidance note.

This guidance note provides an overview of how the margin scheme operates and should be read in conjunction with the following guidance notes:

  1. Overview of margin schemes

  2. Global Accounting margin scheme

  3. Margin scheme ― agents and pawnbrokers

  4. Margin scheme ― auctioneers

  5. Margin scheme ― horses and ponies

  6. Margin scheme ― second hand motor vehicles

Calculating the purchase price

The purchase price is everything the business is required to pay in order to purchase the goods. It will include the following types of costs charged by the supplier:

  1. commission

  2. packaging

  3. transport

  4. insurance

The business must not include any repair, maintenance or other costs incurred that are required in order to sell the goods in the purchase price.

Business overheads must also be excluded from the purchase price of the goods.

Procedure for buying goods

Businesses must following these steps when purchasing goods they intend to sell under the margin scheme:

  1. step 1 ― the business must confirm that the goods are eligible to be sold under the scheme ― see the Overview of margin schemes guidance note

  2. step 2 ― the purchaser must obtain a purchase invoice. If the business is purchasing the goods from a seller who does not need to issue an invoice, it must draft an invoice showing the relevant details (see below). If the seller shows VAT as a separate amount on the invoice then the margin scheme cannot be used and the normal VAT accounting rules will apply.

  3. step 3 ― details of the item purchased must be entered into a

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