Using the auctioneers' VAT margin scheme
If you provide services to a seller or buyer in the UK, find out about the auctioneers' VAT margin scheme and how to account for VAT (VAT notice 718/2).
There are different rules if you provide services to a seller or buyer of second-hand goods, works of arts, antiques and collector items.
You can use the auctioneers’ margin scheme to account for VAT on a margin which is equal to the value of the services you supply, and not the hammer price of the goods.
When you can use the scheme
You can use the scheme if, the goods are eligible and you have checked with the seller before you auction them, and you:
- could not claim any VAT back on the goods you have obtained for resale
- can meet the additional record keeping rules for the scheme
- work out the buying and selling price, and margin, under the rules for the scheme
- sell new goods on behalf of non taxable persons
- are an auctioneer, act in your own name and sell goods which have had VAT charged
The seller must also be:
- not registered for VAT
- a VAT-registered person who supplies goods under the standard margin scheme or Global Accounting scheme
- an insurance company selling eligible margin scheme goods which it has obtained for resale as the result of an insurance claim (provided the goods are sold at auction in the same state)
- a finance house selling eligible margin scheme goods which it has repossessed (provided the goods are sold at auction in the same state)
If you cannot meet the conditions for using the scheme, you’ll have to pay VAT on the hammer price as well as on your services to the seller and the buyer under the normal VAT rules for undisclosed agents.
How the scheme works
You can use a margin scheme for some of your sales and normal VAT rules for others. If you sell an item under the normal VAT rules, you cannot go back and apply any of the margin scheme rules to that sale later.
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
The purchase price is the hammer price less any commission charges you make to the seller. You must not include any other services which you supply to the seller.
Selling price
The selling price is the hammer price plus any charges for services you make to the buyer. For example, buyer’s premium or other commission, or incidental expenses such as packing, transport and insurance costs.
You must not include:
- services which are a separate supply in their own right, for example, providing illustrations in the auction catalogue
- indemnity fees, if an approved insurance company is providing the insurance policy
You must make sure that:
- the charges included in your scheme calculations do not show VAT separately
- your invoices clearly show (for the benefit of both seller and buyer) the respective selling and purchase prices they will need for their own scheme calculations
Any charges not included in the scheme calculations must be invoiced for separately and VAT charged under the normal rules.
Work out the time of supply
If you’re acting in your own name, the goods you sell are deemed, for VAT purposes, to be both a supply to and from you.
As these 2 supplies happen at the same time, they share a common tax point. The tax point for both supplies will be the earlier of you:
- handing the goods over to the buyer
- getting payment
Sales to EU member states
Sales made from Great Britain to EU member states are exports. Find out more about VAT on goods exported from the UK.
Sales made under the auctioneers’ scheme within Northern Ireland and the EU are treated in the same way as sales within the UK. The sales are liable to VAT in the UK.
Invoicing
You must issue the buyer and seller separate invoices, statements or other documents, which should include:
- your name, address and VAT registration number
- the buyer or sellers name and address
- a means of cross-referencing between the sales system and the stockbook, for example, the stockbook number
- invoice number
- date of transaction
- a description of the item
- the hammer price of the goods
- any charges for services made in connection with the sale of the goods — you must not show a separate amount of VAT on any of these charges
- the amount due to the seller (this amount will form your selling price, and the purchase price for a buyer who is VAT-registered and is using a margin scheme)
Sales invoice (buyer)
You must also include on the invoice:
- any charges for services made in connection with the sale of the goods — you must not show a separate amount of VAT on any of these charges
- the amount due from the buyer (this amount will form your selling price, and the purchase price for a buyer who is VAT-registered and is using the margin scheme)
Purchase invoice (seller)
You must also include on the invoice:
- any charges for services made in connection with the sale of the goods — you must not show a separate amount of VAT on any of these charges
- the amount due to the seller (this amount will form your purchase price, and the sale price for a seller who is VAT-registered and is using the margin scheme)
If the buyer or seller is using a margin scheme, their purchase or selling price must be clear from the invoices you issue. You should allocate any charges included under the scheme against each separate lot.
If you’re selling several items for one seller, you must not put the total commission charged on the invoice for one of the items. If the purchase invoice shows a separate VAT amount, the item is not eligible to be sold under the scheme.
Scheme and non-scheme supplies
You should give separate invoices to the buyer if you sell some goods under the auctioneers’ scheme and some goods under a normal margin scheme. You may include all of the goods sold on the same invoice for each scheme.
The sales price for each item sold under the scheme must be clear for the buyer. This will form the purchase price for a VAT-registered dealer who’ll be selling the item on using a margin scheme.
Re-invoicing for goods under the normal rules
If you’ve sold goods and the buyer decides that they wish to treat the transaction outside the scheme, you may re-invoice for the goods under the normal VAT rules, provided that:
- you’re able to comply with the relevant VAT regulations for the substitute transaction
- at the time of the amendment, you and the buyer hold the original records for the transaction
If you’re willing to re-invoice, you must cancel the first entry in your records and cross-refer to the amended transaction. Find out more about how to correct VAT errors and make adjustments or claims.
The replacement invoice must show:
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the original transaction and advise that it’s cancelled
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that the buyer should amend their VAT account
Invoicing in foreign currencies
If you issue an invoice in a foreign currency, you must show the sterling equivalent, including the:
- hammer price of the goods
- commission
- other charges due
To convert amounts into foreign currencies you must use one of the methods outlined in VAT guide (VAT Notice 700).
Selling new goods on behalf of non-taxable persons
The scheme can be used for the sale of all goods grown, made or produced (including bloodstock or livestock reared from birth) by non-taxable persons.
You must get:
- a signed certificate from the vendor giving the vendor’s name and address – this can be incorporated into your existing sales entry
- a description of the goods
- confirmation that they’re not registered for VAT nor required to be registered for VAT
Using the scheme for goods which VAT has been charged
Goods which have had VAT charged on their full value are not normally eligible for the scheme.
If you’re an auctioneer, and you act in your own name, you may opt to use the scheme for:
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works of art, antiques and collectors’ items which you’ve imported yourself (as principal on behalf of a third party) for onward sale in your own name
-
works of art you have obtained (that is, which were supplied in the UK or acquired in Northern Ireland from an EU member state) from creators or their heirs, for onward sale in your own name, whether or not VAT was charged on their purchase or acquisition
To use this scheme for these goods you must:
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Tell VAT general enquiries in writing that you are going to take up the option, and you must specify the date from which you will be applying it.
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Use the scheme for at least 2 years.
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Tell VAT general enquiries in writing when you wish to stop using the scheme.
If you have used the scheme and decide to sell any goods covered by the scheme (for example, if you export the goods), you cannot recover any input tax on those goods until the period in which you account for their sale.
Find out more information if you import or export works of art, antiques and collectors’ items
Keeping records
There are some additional record keeping rules as well as keeping the normal VAT records when using the auctioneers’ margin scheme.
Stock records
You must always keep stock records but you do not have to maintain a stockbook. If you do not, you must keep alternative records.
Examples include:
- entry forms
- sales catalogues
- copies of lots and sales of the day
- copies of sales and purchase invoices
Sales of zero-rated goods
If you sell zero-rated goods, for example antique books, your margin will also be zero-rated.
You should insert ‘nil’ in the VAT due column of your stock record.
Further information
You must show any goods you buy or sell using a margin scheme on your VAT return.