29 Jan VAT Special Schemes Guide
We have already covered the topic of VAT in our complete VAT guide as well as VAT registration & deregistration thresholds.
However, there are some special VAT schemes that apply to certain business industries and include different rules of accounting for VAT. This guide covers the VAT margin schemes and retail schemes.
VAT Margin Schemes
Under the VAT margin schemes only the gross margin of the goods sold is taxed rather than the full selling price. Gross margin is the difference between the costs of an item and the price it was sold for. You will pay one-sixth (16.67%) of the difference in VAT.
You buy an antique for £500 and sell it for £1,000. Under the margin scheme, you will pay VAT at 16.67% (one-sixth) on the difference: £1,000 - £500 = £500. This means you will pay £83.33.
VAT margin schemes can be used by businesses that sell:
- Second-hand goods
- Works of art
- Collector’s items
You cannot use the margin schemes if you sell:
- Precious metals or stones
- Investment gold
- Any items you bought for which you were charged VAT
If some of the items that you sell are not eligible for the VAT margin schemes, you must pay and charge VAT for them in a normal way (on your VAT return). Additionally, business overheads, any repairs, parts or accessories for your goods cannot be included in the margin scheme.
Keep in mind that special rules apply when selling:
- Second-hand cars
- Horses and ponies
- Houseboats and caravans
- High volume, low price items (you can use the Global Accounting Scheme for these)
VAT Retail Schemes
When you sell goods you have to calculate how much VAT to record in your accounts. VAT retail schemes make calculating your VAT simpler. Instead of calculating it for each sale you make, you can do it once on your VAT return.
There are three different VAT retail schemes:
- Point of Sale Scheme
- Apportionment Scheme
- Direct Calculation Scheme
Point of Sale Scheme
You can use the Point of Sale scheme if you can identify the VAT rate for goods sold at the time of the sale (e.g. if you have an electronic till that does this for you).
The apportionment scheme can only be used if you buy goods for resale. You cannot use this if you provide services, handmade goods or goods that you’ve grown yourself and catering services. Additionally, your turnover (excluding VAT) cannot be more than £1 million a year.
Direct Calculation Scheme
The direct calculation scheme is mostly used by businesses that make a small proportion of sales at one VAT rate and the majority at another rate. To use this scheme your overall turnover cannot be more than £1 million a year.
Businesses with turnover of over £130 million (excluding VAT) cannot use these schemes. Instead, they must agree on a bespoke retail scheme with HMRC.
Keep in mind that separate rules also apply if you are a:
Here at ASfB we look after the VAT returns for a variety of businesses: from small SMEs to large organisations. Our clients also operate in a wide range of different industries: retail, housing agents, charities, pharmaceutical, etc.
We can help you choose the most appropriate VAT scheme for your business as well as handle your VAT returns efficiently and accurately.
If you think we can help you, why not call us on 01202 755600 or email email@example.com.