VAT Margin Scheme and postage costs

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We are using the VAT margin scheme for the second hand products we buy and sell.

We pay VAT on the difference between the buy price and sell price at 16.67%.

We are trying to get a better understand on how the postage fees should be accounted for.

  • If we purchase an item for £10 + £2 postage and packaging, can we log the VAT margin scheme buy price as £12 or £10? – in this scenario the postage would be made via RoyalMail which means postage is non-vatable.
  • If we purchase an item for £10 + £2 postage and packaging and it is shipped by courier whose fees are applicable for VAT is the scenario different to the above?
  • If there are 2 items in one purchase, £10 each + £2 postage and packaging for both combined.
    We only sell one of the two items and would like to apply VAT Margin Scheme to this item.
    Should this be logged as £10 as the buy price for calculating VAT Margin Scheme or can this be logged as £12 or a portion of the postage for example 2 items purchase for postage £2, therefore £1 can be applied for this and the buy price of the item would be total £11 for calculating VAT Margin Scheme.
  • If we purchase a second hand goods item on ebay which is applicable for VAT Margin Scheme, and the seller sends the item by courier (not royal mail), can we claim back the VAT? We have not received a VAT invoice from this customer but the amount is a small amount.
  • If we purchase an item for £10 and sell an item for £50 and the postage cost we charge to our customer is £20 (posted via courier), what should we record the selling price as for VAT Margin Scheme purposes?
    In this example, we have received £70 from the customer (£50 + £20). Can this be recorded as £10 buy price, £70 selling price, therefore we should pay 16.67% on £60?
    Or should we calculate this as £10 buy price, £50 selling price, we should pay 16.67% of £40 and pay VAT at 20% for the £20 postage and packaging?

Thanks for your help and I look forward to the advice anyone can offer on this.

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Posted by al-fn (Questions: 36, Answers: 44)
Asked on 6 June 2020 10:40 am
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The VAT Margin Scheme, can be used when selling second-hand goods, works of art, antiques and collectors’ items. Under this scheme VAT is charged on the difference between what is paid for an item and what is sold for, rather than the full selling price. VAT is paid at 16.67% (one-sixth) on the difference.

The purchase price is defined as the amount you paid for the item including any incidental costs you have been charged, such as postage and packaging.

Under the Margin Scheme, costs such as overheads, repairs, parts or accessories must not be added to the purchase price of the goods you sell under the scheme. VAT can be reclaimed on these as usual.

 According to HMRC, purchase price includes incidental expenses directly linked to the purchase which you were charged by your supplier, for example:

  • commission
  • packaging
  • transport 
  • insurance costs

 HMRC does not make a distinction of transport/postages between Royal Mail or courier.

An item purchased for £10 + £2 postage and packaging will have a purchase price of £12 in both cases. Whatever its selling price then may be, the total of £12 will be subtracted and 16.67% of that will be the VAT payable.

 

In the scenario where 2 items are purchased and have one fixed postage and packaging price, a proportional pro-rata method can be used to split the postages over the 2 items based on their price. HMRC asks you to allocate reasonably the purchase price on any single lot of items purchased.

 

If you are purchasing an item from a private individual or an unregistered business, where an invoice cannot be issued, HMRC requires you to make out the invoice yourself. All purchase invoices must contain the following information:

  • Seller’s name and address
  • Your name and address
  • A means of cross-referencing between the sales system and the stock book, for example, the stock book number
  • Invoice number (unless you made out the purchase invoice yourself)
  • Date of transaction
  • A description of the item
  • Total price – you must not add any other costs to this price
  • If you bought the item from another VAT-registered business, any of the following, Margin Scheme – second-hand goods, or Margin Scheme – works of art or Margin Scheme – collectors’ items and antiques

 Please note that if you have bought an item and VAT is shown separately on the purchase invoice, you cannot sell that item on under a Margin Scheme, even if you have not claimed the VAT back.

 

The selling price is the amount you sold the item for, including any incidental costs you have charged to your customers, directly linked to the sale, such as:

  • commission
  • packaging
  • transport
  • insurance costs

 If an item is sold for £50 plus £20 courier fees, then the selling price is considered to be £70.

If the purchase price is £10, then VAT under the Margin Scheme is charged on their difference, £60. VAT payable is therefore £10 (which is £60 divided by 6).

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Posted by al-fn (Questions: 36, Answers: 44)
Answered on 6 June 2020 11:10 am
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