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BUSINESS TIPS

What is the Second Hand Goods Scheme?

HMRC operate a number of so called VAT “margin” schemes which are available in certain circumstances.

VAT is the acronym, for value added tax.  As such, this is a tax on the value added to a good or service.  Most businesses buy goods or services (including a VAT charge) and sell them on for a higher price (including a VAT charge).  When calculating the VAT due to HMRC, you subtract the VAT on purchase from the VAT on sale.  This means that effectively, the tax is applying on the value added.

Some businesses buy their goods from individuals who are not VAT registered.  For example, jewellers or second hand book sellers may buy goods from members of the public to resell.  Since they were not charged VAT on this purchase, accounting for VAT on the full sale value alone would seem unfair and against the principle of a tax on the value added.

The VAT margin scheme means that traders can account for VAT only on the margin they make (sale price less purchase price), rather than the selling price alone.  The scheme is generally available only to traders selling second hand goods, works of art, antiques or collectors’ items.  There are some exemptions and the record keeping is somewhat more complex, however generally the scheme offers significant tax savings.

For more information on the scheme or the opportunities available, please contact Wisteria’s tax team on 020 8429 9245.