VAT margin scheme

[japancool]

We sell pre-owned items as well as new items. All pre-owned items are bought from private sellers, so there's no VAT paid on them.

Can I use the VAT margin scheme on these items? They are scale model kits.

How do I account for this in Xero?

 

[Karimbo]

Not an accountant, not on margin scheme but this is my general understanding of it.

You pay vat on the difference. So if you buy for 10quid, sell for 20quid. You'll pay vat on that £10 margin. £8.33 yours, £1.67 hmrcs.

I use freeagent not xero. But there is an option to enter custom VAT amounts in pounds/pence. You would keep track of the cost price and enter the relevant vat on that sale.

I don't think margin. Relief works on flat rate scheme. So check flat rate scheme is best suited for you. So flat rate schemes rate will apply on your 2nd hand items just as they were brand new. But you would still enter the sales as described above so the accounting software can work out the flat rate scheme surplus (or defeceit) so you can see if you're in the scheme correctly.

Also customers don't get vat receipts on margin relief. You put your vat number in ofxourse. But the invoice will state its a margin relief item so vat is 0% (for their purposes)

Fingers crossed I'm right (posts are locked from edits after 30 mins), wait for an accountant to answer.

 

[japancool]

I don't think margin. Relief works on flat rate scheme. So check flat rate scheme is best suited for you. So flat rate schemes rate will apply on your 2nd hand items just as they were brand new. But you would still enter the sales as described above so the accounting software can work out the flat rate scheme surplus (or defeceit) so you can see if you're in the scheme correctly.

I'm not using the flat rate scheme, so that shouldn't be an issue.

I have a standard markup for pre-owned items, so I should be able to enter a custom VAT rate for these, I just need to make sure this is the right way to do it.

 

[japancool]

Also customers don't get vat receipts on margin relief. You put your vat number in ofxourse. But the invoice will state its a margin relief item so vat is 0% (for their purposes)

That seems odd - there's still VAT on it, so I'm not sure why they wouldn't get a receipt and a 0% sale?

 

[Karimbo]

Have you run the numbers to see if flat rate scheme is better for you or not?

For me I am around £3000 a year better off on flat rate scheme.

 

[japancool]

Have you run the numbers to see if flat rate scheme is better for you or not?

Yes, it isn't worthwhile for us.

In any case, we'll be pushing the limit for the scheme this year so we wouldn't be able to use it.

 

[scstock]

I've sold used items using the Margin Scheme for a few years.

I use QuickBooks but I think the principle would be the same ; if I sell an item for £100 that we paid £70 for then the transaction has two lines:

• sale of the item for £70 with a description of the item including serial number if possible,
• "Commission" of £25 + £5 VAT.

I keep a paper file of all purchases showing price paid and identifying serial numbers.

 

[NicoJ]

I've sold used items using the Margin Scheme for a few years.

I use QuickBooks but I think the principle would be the same ; if I sell an item for £100 that we paid £70 for then the transaction has two lines:

• sale of the item for £70 with a description of the item including serial number if possible,
• "Commission" of £25 + £5 VAT.

I keep a paper file of all purchases showing price paid and identifying serial numbers.

That's the only way I've found of doing this on the commercial softwares. It's only a problem if the buyer wants an invoice as it won't be a correct margin scheme invoice.

 

[scstock]

That's the only way I've found of doing this on the commercial softwares. It's only a problem if the buyer wants an invoice as it won't be a correct margin scheme invoice.

That's true - I produce our invoices using a different system, so can customise them to not show any VAT and the required wording "Margin Scheme - this invoice does not give the right to an input credit of VAT"

 

[japancool]

So the buyer can't reclaim VAT on products bought on the margin scheme?

It's not a huge issue as I'm mostly B2C but it does occasionally come up.

 

[NicoJ]

So the buyer can't reclaim VAT on products bought on the margin scheme?

It's not a huge issue as I'm mostly B2C but it does occasionally come up.

No. You can only claim VAT when it has been charged, it hasn't been charged on a margin scheme invoice.

 

[japancool]

No. You can only claim VAT when it has been charged, it hasn't been charged on a margin scheme invoice.

I'm a little confused. Aren't you charging some VAT, but only on the margin?

So you buy for £50, you sell for £100 (ex VAT), and you're charging 20% of £50, so total sale price £110, and you still have to remit that £10 to HMRC? Or am I misunderstanding something here?

 

[NicoJ]

I'm a little confused. Aren't you charging some VAT, but only on the margin?

So you buy for £50, you sell for £100 (ex VAT), and you're charging 20% of £50, so total sale price £110, and you still have to remit that £10 to HMRC? Or am I misunderstanding something here?

No, you would pay £8.33 which is the VAT on the profit of £50. You are paying the VAT similar to how a consumer pays rather than charging therefore the onward supply has no recoverable VAT.

EDIT: your sales price is either £100 or £110 its not exc or inc VAT its simply the sale price.

 

[japancool]

Great, thanks, got it now.

Given the required wording on the invoice, what do people here do if someone buys a new item alongside a used item? Issue two separate invoices? I'm selling online, so I don't normally issue "invoices" as such.

 

[scstock]

Great, thanks, got it now.

Given the required wording on the invoice, what do people here do if someone buys a new item alongside a used item? Issue two separate invoices? I'm selling online, so I don't normally issue "invoices" as such.

It's never come up, but I would issue a separate invoice,