A gif called 'You vs the tax man - episode one shocking behaviour' where a cartoon character gets electrocuted next to some computers that read 'VAT'

VAT or Not VAT

Posted on: 29 Nov, 21

That’s the question that many businesses getting involved a more circular economy will face. Oury & Clark take a welcome look at some of the jungle of tax related issues.

oury worried

Morning Clark, you look in a bit of a spin.

clark confusion

That’s cos i’m trying to get my head around the circular economy.

oury normal

I’m not sure that means you have to run around in circles, are you sure you know what it means?

clark normal

Oh yes, it’s all the rage, and only going to get bigger as people attempt to share, re-use and recycle more goods in order to help solve big global problems like pollution, waste & climate change.

oury normal

Like second hand clothes? They’ve been around for ages haven’t they, my brother used to get all of my hand-me-downs.

clark positive

Awkward. We prefer the term pre-loved (or vintage if you’re posh) and even some of the big supermarkets and fashion chains are at it these days.

oury angry

Sounds great, what’s the problem?

clark angry

It’s the tax man Oury, he keeps clobbering my margin on my collectibles business.

oury angry

How so?

clark normal

Take this top hat.

oury doubt

No thanks, it looks too “pre-loved” to me.

clark normal

As an example. I bought it through the business for £1,500 and i’ve just sold it for £2,000.

oury positive

So a £500 profit, where’s the problem?

clark angry

Not quite, it was second hand so I didn’t have to pay VAT on the purchase, but I sold it through the business, so had to pay the VAT. That slashed my profit to £167.

oury excitement

Oh, sweet child of mine, haven’t you heard of the VAT margin scheme?

clark confusion

Yes, no, you tell me about it first so i can check.

oury normal

The VAT margin scheme. It was introduced for businesses that sell second hand goods, works of art, or smelly used rockstars hats that they’ve done god knows what in otherwise referred to as collectors items.

clark angry

Interesting, exactly what I thought. what does it mean?

oury positive

It means that you only pay VAT on the difference between the amount that you paid and the amount you sold it for later.

clark confusion

I seem to have mislaid my calculator. How much profit would I have made if I used the VAT margin scheme?

oury normal

Well you only pay it on the difference. So you would only pay VAT on the £500 difference between the price you bought it at and the price you sold at.

clark doubt

But that’s only a VAT of £83!

oury sad

And a missed profit £417.

clark excitement

Think of the music memorabilia I could buy. I could start helping to save the world and make a tidy sum. Why doesn’t everyone do it?

oury normal

Well, there are some conditions – including record keeping – that put people off. You cannot use a margin scheme for any item you bought for which you were charged VAT, precious metals, investment gold, precious stones and…

clark uncertain

Hats?

oury normal

There are special rules around selling secondhand cars, horses and ponies, and houseboats and caravans too.

clark angry

Is there anything without a catch?

oury laugh

Oh yes. Second-hand goods, particularly high value goods like handbags, shoes, watches or wedding dresses. works of art, antiques and collectors’ items like your smelly old hat.

clark positive

Where do I sign?

oury doubt

Woah Woah Woah, it’s not worth everyone’s while. It’s important to understand the full picture because you’ll have to pay VAT on the full selling price of each item if you do not meet all the scheme’s requirements. If you used the margin scheme and then HMRC assesses you, there’ll be a shortfall and you’ll be picking up the bill. Also there is quite a lot of record keeping involved.

clark doubt

I was going to sell records as well as memorabilia.

oury normal

Not those kinds of records You’ll have to keep the regular VAT records, and a stockbook that tracks each item sold under the margin scheme individually with copies of purchase and sales invoices for all items. You must keep VAT records for 6 years. You must keep records until you sell the item for any stock you bought more than 6 years ago that you plan to sell under the margin scheme.

You must have invoices for each item that meet the VAT margin scheme requirements.

clark sleepy

*Yawn* can’t you just set it up for me, I make all the money and you do the VAT?

oury rolls_eyes

Rude, but yes of course we can see if your items are eligible and whether there’s a commercial value in getting it all set up. If you’ve got friends that are involved in the secondhand market as part of the circular economy, then we can see what can be done.

clark positive

I’m going to call the business “Clark’s Originals”

oury laugh

Let’s get you an IP lawyer too shall we?

Disclaimer

We are but two fictitious characters throwing out ideas and comment to stimulate debate and collect information. As professional service firms, we are open-minded people and think independent thought and debate are essential to help us understand as well as navigate complex problems. By joves – doing business across Europe (and the world) is set to become a whole lot more complex in light of recent seismic political events. As businesses – we provide information and hopefully some wisdom – and we see this blog and its caricatures merely as a much more fun, perhaps slightly controversial, way of stimulating debate and collecting ideas. We’re searching for some true pearls of wisdom, and as we find them, we’ll share them with you.

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