Selling unredeemed pawns if you use a VAT margin scheme
If you're a pawnbroker who sells unredeemed pawns in the UK, find out how to use a margin scheme to account for VAT (VAT Notice 718).
There are different rules you need to follow if you’re a pawnbroker who sells unredeemed pawns under a margin scheme.
When you can use a margin scheme
You can only use a margin scheme if all of the following apply:
- the goods are eligible
- loan is for £75 or less
- the loan period was for at least 6 months
When you cannot use a margin scheme
If the pledge is restored during the period of grace, there will be no VAT due on the supply provided you:
- record the redemption in your pledge stock records
- stamp the ‘Credit Agreement and Pawn Receipt’ with the date of redemption and keep it for inspection by HMRC
You cannot account for the restoration of the pledge under the margin scheme or the Global Accounting Scheme. You’ll need to adjust your purchase record if you’ve already entered the items in your scheme records.
How to work out the margin and VAT due
You should:
- work out the purchase price and selling price
- take away the purchase price from the selling price to work out the gross margin
- multiply the gross margin by 1/6
The VAT due is the difference between what you paid for the goods and what you sold them for, not the overall profit you have made on them.
Purchase price
Your purchase price will be the amount of the loan plus the initial 6 months interest payable, minus any payments received from your customer.
You must not add to the purchase price:
- any interest for the 3 month grace period
- costs for:
- cleaning
- repair charges
- storage and other overhead expenses
Selling price
The selling price is everything you receive for the goods, whether from the buyer or a third party, including incidental expenses directly linked to the sale.
Records to keep
You must keep the usual VAT records when you use a margin scheme.
You can keep the credit agreement or pawn receipt as your purchase invoice, as long as:
- the contract number is entered in your pledge stock record and cross refers to the agreement
- a copy of the interest calculations and total purchase value for margin scheme purposes is attached, if it differs from the amount shown on the receipt
Further information
You must show any goods you buy or sell using the margin scheme on your VAT return.