Second hand schemes and VAT

Businesses selling second-hand goods, antiques, or works of art may benefit from a second-hand VAT scheme. Instead of paying VAT on the full selling price, they only account for VAT on the margin – the difference between what they paid for the item and the resale price.

This scheme helps businesses remain competitive by reducing the VAT impact on used goods. However, while it benefits VAT payments, turnover calculations follow different rules.

Turnover Measurement Under Second-Hand Schemes

A key misunderstanding arises when measuring turnover under second-hand schemes and VAT rules. Although VAT applies only to the margin, the full sale price counts towards turnover. This could push businesses over the VAT registration threshold or impact financial reporting obligations.

For example, if a business buys a second-hand item for £200 and sells it for £500, VAT applies to the £300 margin. However, turnover records the full £500, not just the margin.

How Tour Operators Differ

The treatment of turnover under second-hand schemes and VAT differs from how tour operators account for their revenue. Tour operators using the Tour Operators’ Margin Scheme (TOMS) only count their margin as turnover. This is because VAT rules for travel services are unique, recognising that businesses act as intermediaries rather than direct sellers of goods.

Second-hand sellers, however, must consider their entire sale value when assessing turnover, even though VAT calculations are margin-based.

How We Can Help

Understanding second-hand schemes and VAT can be complex. Ensuring correct VAT reporting while staying compliant with turnover rules is essential. At Lewis Brownlee, we provide expert VAT advice to help businesses navigate these challenges effectively.

If you need guidance on VAT schemes or turnover calculations, contact us today. Our team is here to help.