Question 1: I am on the VAT Margin Scheme. What do I have to do on the app?
Below are the set of guideline steps which could be followed for a business on HMRC’s VAT Margin Scheme. In the example below, an art gallery business buys a work of art for £1,500 and sells it for £2,000. Using the margin scheme, the business needs to pay VAT at 16.67% (one-sixth) on the difference £500. This means the business will need to pay HMRC £83.33. To record the purchase and sale of the work of art the business would perform the steps below in the app:
1. If VAT was paid on the purchase of goods that are be resold, the VAT amount cannot be claimed back from HMRC. Therefore for the purchase invoice received for £1500 for the work of art should be entered as a BILL EXPENSE with a Total Cost of £1500 and VAT Amount of £0.00.
2. When entering the sales invoice, as per HMRC guidelines, the VAT amount should not be shown on the sales invoice. The sales invoice should therefore be entered as an INVOICE with a Total Invoice of £2000 and VAT of 0%.
3. Use the INVOICE Notes field to make clear the invoice relates to the margin scheme to the customer. For example populate the notes with, ‘margin scheme – second hand goods’, ‘margin scheme – works of art’ or ‘margin scheme – collectors’ items and antiques’.
4. You may record the actual VAT amount using the NOTES widget at the bottom of the INVOICE. This information is not shown to the customer. E.g. VAT Amount charged on margin was £83.33.
5. When the VAT submission is made, using the MTD VAT feature, the app will automatically populate the following boxes as follows:
- Box 1 £0 (Output Tax on all eligible goods sold in the period covered by the return.)
- Box 6 £2000 (Full selling price on all eligible goods sold in the period, less any VAT due on the margin.)
- Box 7 £1500 (Full purchase prices of eligible goods bought in the period.)
6. Adjustments will need to be made to Box 1 and Box 6 for the VAT due on the margin which was £83.33. Using the Adjustment boxes on the MTD VAT return, enter 83.33 in Box 1 and -83.33 in Box 6.
Important to note if you have an accountant/agent, please review with them how you plan to enter invoices and expenses related to the VAT Margin Scheme. Please also refer to HMRC (https://www.gov.uk/vat-margin-schemes) for further information as rules are subject to change.