If you sell second-hand vehicles and you were not charged VAT when you purchased the vehicle, using the Margin Scheme will save you money.
If you did not use the VAT Margin Scheme, you would have to account for VAT on the full selling price of each vehicle. However, if you use the Margin Scheme, you can account for VAT on the difference between the price you paid for a second-hand vehicle and the sales price when you sell the car.
If you sell a vehicle for less than you paid for it, you will not have to account for any VAT on the sale.
You do not have to use the Margin Scheme, it is optional.
If you decide to use it, there are conditions you will have to meet. If you cannot meet all the conditions, you cannot use the scheme.
The main conditions published by HMRC are:
- the vehicles must be eligible,
- you must have acquired the vehicles in eligible circumstances – in most cases, this means that you have obtained eligible vehicles for resale in circumstances where VAT was not chargeable,
- you must calculate the margin in accordance with the rules of the scheme, there are special rules about how to calculate your buying price, your selling price and your margin under the scheme, your margin may not be the same as your profit margin,
- you must meet the record-keeping rules of the scheme, there are special rules about invoicing and stock records.