The margin scheme: VAT on your profit margin instead of your turnover

What does the margin scheme involve?

Under the margin scheme you only pay VAT on the difference between your selling price and your purchase price: your profit margin. If you sell a second-hand cabinet you bought for 100 euros for 200 euros, you charge VAT on 100 euros instead of on 200. Without this scheme you would be taxed more heavily than a dealer who buys with VAT, simply because your seller couldn't charge any VAT.

When may you use it?

The scheme applies to used goods, art, antiques and collectors' items purchased without VAT. In practice that means: bought from a private individual, from a business applying the margin scheme, or from someone exempt from VAT. If you buy from a supplier who does charge VAT on the invoice, the normal rules apply and you deduct that VAT. New goods never qualify.

How do you calculate the VAT?

Your margin includes VAT. At the standard rate you therefore owe 21/121 of your margin: on a margin of 100 euros that's roughly 17.36 euros. You can calculate per item using the individual method, or offset all your purchases against all your sales per return period using the globalisation method. For vehicles such as cars, motorbikes, bicycles, mopeds and caravans that globalisation method is in fact mandatory, including their parts and accessories. Beyond that it is practical if you trade many small lots, because a negative margin in a period may be carried forward.

What do you put on the invoice?

On a margin invoice you state no VAT amount and no VAT rate. You note that you apply the margin scheme, for example with the wording special scheme for second-hand goods. Your customer therefore cannot deduct the VAT; for private customers that makes no difference, for business customers it does. If you buy 500 euros or more from one supplier, you draw up a purchase statement with the seller's details, the item and the price, signed by that seller. Without those records you can't demonstrate in an audit that you're applying the scheme correctly.

What's sensible to do?

Keep your margin purchases and margin sales strictly separate from your regular turnover in your bookkeeping; mixing them up is the biggest pitfall. If you mainly sell to business customers, check whether the normal scheme works out better, because you may choose per supply. If you're unsure which category your trade falls into, run it past us before invoices go out.

A worked example and the ground rules

The heart of the margin scheme: you charge VAT on your profit margin rather than the full sale price, because you bought from a private individual who could not charge VAT.

• The scheme covers used goods bought without VAT: from private individuals, small-scheme businesses or other margin sellers.
• Your customer may not deduct VAT from a margin invoice; never state a VAT amount.
• Keep a purchase register with each item's cost and origin; that is your evidence and falls under your retention obligation.
• Selling at a loss makes the margin negative. Under the globalisation method you may offset it against positive margins in the same period.
• VAT on your own costs, such as tools or rent, is reclaimed as usual; the scheme touches only your sales.

Frequently asked questions