VAT on Secondhand goods

[JSR]

Hello All,

I am looking for some clarification with VAT and how it applies to Secondhand goods and the best way to account for it.

Some background: The business (sole trader) supplies parts and services, often by mail order. Many of these items are brand new, but some are secondhand. The business is VAT registered, so VAT is normally charged on most sales.
The accounts are conducted on an accrual basis with VAT in the standard way (not Flat Rate or Motor Dealer schemes, etc.)

My understanding is that VAT should not be charged on secondhand goods at all. However, some of the secondhand goods are bought in and occasionally a supplier issues an invoice including VAT on the secondhand element.

The initial thought was to neither charge VAT on the sale nor claim VAT on the purchase (from the business' point of view). Is this possible?

My main concern is the secondhand goods are sold for more than the purchase price, therefore 'Value' has been 'Added'. And secondly, wether it is ok to choose to essentially ignore VAT on certain items.

I can feel a phone call to the tax office coming on, but would be grateful for any input to check if I am talking any sense... Usually takes a few goes to get the VAT hat on the right way round!

Thank you,

James.

[James Smith]

James,

Thats a surprisingly technical question actually. The way it works is that as you are VAT registered you must charge VAT on all your sales as this is presumably your trade, HOWEVER (there is often a however with VAT!) there is a "second hand margin scheme" which allows you to pay VAT over only on the margin between your purchase and sales price, that is to say if you sell for £1000 and buy for £800 you pay over VAT on the £200 profit.

What I dont know off the top of my head as it doesn't apply to any of my clients (and I afraid I don't look things up for forum posts) is how the two interact. In that whether or not you can run the two schemes in parallel. A call to the VAT may help, but please remember such calls are NOT binding and the operators are just reading out of the manuals which you can also view on-line. Your better bet would probably be a chat to the VAT office and confirm this conversation with your accountant you is of course looking to save you tax as opposed to collect it!

Hope that helps

Regards,

[JSR]

Thank you for your informative and considered response, James.

Glad I am not thinking the issue is more complex than it is.
Will make further enquiries to see if the margin scheme is the appropriate way to go and if two different schemes can be used.

Thanks again,

James.

[Nilesh Mandvia]

Hi James

Generally Vat is charged on all the full value of any goods, including second hand goods. The treasury may allow by issuing an order (statutory instrument) businesses to opt to charge vat on the profit margin on supplies of works of art, antiques or collectors’ item, motor vehicles and second hand goods.
The margin scheme is voluntary and goods may be sold in accordance with the normal rules even when acquired under second hand goods scheme (margin scheme)

My understanding is that VAT should not be charged on secondhand goods at all. However, some of the secondhand goods are bought in and occasionally a supplier issues an invoice including VAT on the secondhand element.

That is not correct you pay vat on the margin you make. For example you purchase a item for £800 and sell it at £1000.00. So you made a margin of £200.00 inclusive of vat. Then you strip out the vat element and pay the vat over to HMRC.

If you receive a vat invoice for an item, then you can not use margin scheme (second hand goods scheme). You have to use standard vat scheme.

The initial thought was to neither charge VAT on the sale nor claim VAT on the purchase (from the business' point of view). Is this possible?

If you supplying taxable supplies then No.

My main concern is the secondhand goods are sold for more than the purchase price, therefore 'Value' has been 'Added'. And secondly, whether it is ok to choose to essentially ignore VAT on certain items.

If you are making margin then you have to pay vat. There is no escape.

I can feel a phone call to the tax office coming on, but would be grateful for any input to check if I am talking any sense... Usually takes a few goes to get the VAT hat on the right way round!

James.

Even if you ring help line, it will not be much help as the information they provide is not binding and you can not rely on their advice.

If you are in doubt of application of particular point you may write to them but most likely they will refer you to Vat Notice 718.