Using the global accounting VAT margin scheme
How to account for VAT using the global accounting scheme.
The global accounting scheme is a simplified version of the VAT margin scheme.
The scheme allows you to account for VAT on the margin between your:
- total eligible purchases
- total eligible sales
This covers the whole period of your tax return.
You cannot use the scheme for the sale of individual items.
When you can use the scheme
You can use the scheme if both:
- the goods are eligible for the margin scheme
- you buy and sell low-value goods in bulk volume
You can also use the scheme if you:
- split collections of items and either sell the items separately, or use them to form other collections
- combine 2 or more items to produce only one item for resale
- buy an eligible item for £500 or more, and the item is made up of several components valued at less than £500, and you sell the component items individually
When you cannot use this scheme
You cannot use the scheme if:
- VAT is shown separately on an invoice for an item you purchase
- you buy an eligible item for £500 or more, the item is made up of components valued at less than £500, and you sell the item in the same state as it was purchased
- you sell any of the following goods:
- aircraft
- boats and outboard motors
- caravans and motor caravans
- horses and ponies
- motor vehicles, including motorcycles, except those broken up for scrap (read section ‘Sale of scrap’)
How to use this scheme
To use the scheme you must:
-
Work out the value of your stock on hand (read section ‘How to value your stock on hand’).
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Calculate the VAT due (read section ‘How to work out the margin and VAT due’).
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Find out what records you need to keep (read section ‘Records you need to keep’).
How to value your stock on hand
When you start using the global accounting scheme, you may include any eligible stock on hand.
To value your stock on hand, you must be able to identify the:
- eligible stock
- purchase value
You can find the value from the original purchase invoices. If you’re newly registered or you do not have original purchase invoices, you can use another fair and reasonable method.
Any goods you bought on an invoice which shows VAT separately are not eligible for resale under the scheme.
If you do not include your stock on hand in the scheme, you may be able to sell it under the normal margin scheme. Otherwise, you must account for VAT on the full price when you sell those items.
How to work out the margin and VAT due
VAT is calculated at the end of each tax period.
You should:
- work out the total purchase price and total selling price of all items included in the scheme — you will need to keep separate records for goods that have different liability, for example reduced-rate goods
- subtract the total purchase price from the total selling price to work out the gross margin
- multiply the gross margin by:
- 1/6, where the 20% standard rate VAT applies
- 1/21, where the 5% reduced rate VAT applies
If you sell zero-rated goods, for example antique books, your margin will also be zero-rated.
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.
In some accounting periods, your total purchases may exceed your total sales and produce a negative margin, so no VAT is due.
You must carry the negative margin forward to the next period to reduce your global margin in that period. You cannot offset the negative margin against any other figures or record.
Purchase price
The purchase price is everything you pay (the consideration) for the goods.
Find out more about consideration in section 7 of Notice 700.
When you work out the value of your total purchases at the end of the first accounting period, you can include the value of any eligible stock you bring into the scheme.
Selling price
The selling price is everything you receive (the consideration) for the goods, whether from the buyer or a third party, including incidental expenses directly linked to the sale.
Other goods eligible for the scheme
Sale of scrap
You can include second-hand motor vehicles if you break them up and sell them on as scrap.
You may already have a vehicle entered in your second-hand vehicle stock book. If so, you should close the entry and transfer the details to your global accounting purchase records.
You must keep the normal commercial documentation to show that the vehicle no longer exists and that the scrap parts are eligible for the scheme.
If you buy a scrap motor vehicle for more than £500, you can still use the scheme for disposal of the components.
You cannot use this scheme when:
- any individual components are valued at over £500
- you sell any scrap parts from a vehicle where you were charged VAT separately when you bought it
You must sell these items under the normal VAT rules.
Bulk purchases and collections
You can use the scheme for bulk purchases and collections if the combined purchase price is over £500.
You cannot use the scheme if an individual item has a purchase value of over £500. You may sell these items under the normal VAT rules or under a standard VAT margin scheme.
Invoicing and recording transactions
Sales invoices
You must issue a sales invoice to other VAT-registered dealers and include:
- your name, address and VAT registration number
- the buyer’s name and address
- the invoice number
- the date of sale
- a clear description of goods so we can verify they are eligible for global accounting (for example 4 tables, 10 chairs)
- the total price — you must not show VAT separately
- the statement ‘global accounting invoice’
Purchase invoices
If you’re buying from a private individual or an unregistered business, you must make out the purchase invoice yourself (this is called a self-billed invoice).
Find out more about self-billed invoices and self-billing in VAT Notice 700/62.
When completing a self-billed invoice, you must include the following information:
- the seller’s name and address
- your name, address and VAT registration number
- the invoice number
- the date of transaction
- a description of the items
- the total price paid — you must not add any other costs to this price
Purchase and sales summaries
You must include the:
- invoice number, if shown on the invoice
- date of purchase or sale
- description of goods
- total price
Selling goods
If you meet the conditions, you may use the scheme when you sell the goods by:
- recording the sale in your usual way, for example, by using a cash register
- issuing a sales invoice for sales to other VAT-registered dealers and keeping a copy of the invoice
For each tax period you must transfer the following to your global accounting sales records or summary:
- daily takings for eligible goods
- total value of copy invoices
Records you need to keep
Global accounting scheme records should:
- include purchases and sales, together with how you’ve worked out the VAT due
- be up to date and clearly distinguishable from any other records
- be kept for 6 years
If HMRC cannot check the margins you have declared, VAT will be due on the full selling price of the goods you’ve supplied.
If you lose any goods through breakage, theft or destruction, you must subtract their purchase price from your global accounting purchase record.
You can reclaim the VAT you’re charged on any business overheads, repairs and restoration costs. You must not add any of these costs to the purchase price of the goods you sell.
If you stop using the scheme or transfer goods as a going concern
In the final period you use the scheme, you must make a closing adjustment to take account of purchases for which you have taken credit, but which have not been sold.
To do this, you must both:
- add the purchase value of your closing stock to your sales figure for that period
- pay VAT on the stock which you previously purchased using the scheme
This does not apply if the total VAT due on your stock on hand is £1,000 or less.
These adjustments are separate if you transfer goods as a going concern, which is not subject to VAT.
Selling items outside the scheme
You must adjust your records if you sell items you have included in your purchase records outside the scheme (for example, you export them).
At the end of the period you must deduct the purchase value of the goods you have sold outside the scheme from your total purchases.
If you do not know the exact purchase value, for example, the goods may have been part of a bulk purchase, you must:
- calculate a proportionate value
- be fair and reasonable
- be able to demonstrate to HMRC how you determined the value
- keep records of your calculations for 6 years
Further information
You must show any goods you buy or sell using a margin scheme on your VAT return.
You can find the legal conditions in VAT tertiary legislation:
- section 6.1 — sales invoice
- section 6.2 — purchase invoice
- section 6.3 — records
- section 6.4 — goods lost through breakage, theft or destruction
- section 6.5 — use of global scheme for scrap vehicles
- section 6.6 — commencement of use of global scheme
- section 6.7 — cessation of use of global scheme