Operating the margin scheme

By Tolley

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

  • Operating the margin scheme
  • Calculating the purchase price
  • Calculating the selling price
  • Calculating the margin
  • Books and records
  • EU transactions
  • Imports and exports
  • Accounting issues
  • Works of art, collectors’ items and antiques
  • Shares and joint purchases
  • Including margin scheme supplies on the VAT return

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

  • Overview of margin schemes
  • Global Accounting margin scheme
  • Margin scheme – agents and pawnbrokers
  • Margin scheme – auctioneers
  • Margin scheme – horses and ponies
  • Margin scheme – second hand motor vehicles

VATA 1994, s 50A; De Voil Indirect Tax Service V7.244 and V3.531 (subscription sensitive); SI 1992/3222, Article 2; SI 1995/1268, Article 12; FA 1995, s 24 (subscription sensitive);Notice 718 The VAT Margin Scheme and global accounting ; VATMARG02000
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:

  • commission
  • packaging
  • transport
  • 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:

  • 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
  • step 2 – the purchaser must obtain a purchase invoice. If the business is purchasing the goods from a seller who does not need to

More on Margin schemes: