Value Added Tax

Operating the margin scheme

Produced by Tolley
  • 19 Oct 2021 23:03

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

  • Operating the margin scheme
  • Procedure for buying goods to be sold under the margin scheme
  • Calculating the purchase price
  • Procedure for buying goods
  • Procedure for selling goods under the margin scheme
  • Calculating the selling price
  • Procedure for selling goods
  • Calculating the margin
  • Books and records
  • Stock books
  • More...

Operating the margin scheme

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 ― secondhand motor vehicles

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

Procedure for buying goods to be sold under the margin scheme

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

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

  2. step 2 ― 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 ― enter details of the item purchased into a stock book. The purchase price of the goods must exclude any refurbishment / repairs / maintenance work, etc as these costs must not be added to the purchase price. If a number of items are purchased from the

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