Solution Properties
Solution ID:
200427112156099
Last Modified Date:
Fri May 23 11:10:07 UTC 2025
Taxonomy Path:
Case category//How do I...//governmental/legislative compliance
Author:
[email protected]
Set up and use the VAT Margin scheme for second-hand goods - UK only
Description

You normally pay VAT on the full sales price of goods, but for second-hand goods like cars, or antiques, it's calculated on profit. This is referred to as the Gross Margin.

Follow the steps below in conjunction with VAT Notice 718. Obtain a copy of this notice to support the rules for recording your stock.

If you sell Margin Scheme goods at a loss, you can't offset the loss against profit from other goods.

 TIP: Run and print the Output Tax reports before you run your Year End routine in Sage 50 Accounts. The Year End process removes the information required for the reports.

Cause
Resolution

Follow each section below to set up the VAT Margin scheme and prepare your VAT return.

Before you start

For more information on how to qualify for this scheme and transactions not covered, follow The VAT Margin scheme for second-hand goods article.

▼ Set up your company

When you set up your company, ensure you choose the Standard VAT scheme.

To check or amend this:

  1. Go to Settings then select Company Preferences.
  2. Select the VAT tab, then in the VAT Scheme drop-down list, select Standard VAT.
▼ Create a product record for goods included in the VAT Margin scheme

In this example, we're recording the purchase and sale of a second-hand car under the VAT Margin scheme.

  1. Go to Products and services then select New.
  2. Complete the Product Record window as follows:
    Product Code* Enter the product code you want to use to identify the item.
    Product type Select Stock Item.
    Description Enter the description for the item.
    Supplier A/C Enter the supplier's account reference.
    Tax Code Enter T9.
    Category Choose the required stock category for second-hand goods. We recommend you use the same stock category for all of your second-hand goods. You can then identify the products as a group on the output tax reports.
    *This information is mandatory
    Create a separate record for each item you're selling. For example, create a record for each car sold.
  3. Enter other relevant information as required.
  4. Click Save then Close.
▼ Adjust in goods included in the VAT Margin scheme
  1. Go to Products and services then select Adjustment in.
  2. Enter the required information on the Stock Adjustments In window to record the purchase of the item. For example, to record a stock adjustment in for one car valued at £1000.
    Product Code * Details Date* Ref Quantity* Cost Price
    CAR Product description Date of purchase Reference 1 1000
    *This information is mandatory.
  3. Click Save then Close.

You've now recorded an adjustment for the purchase of the second-hand car. This transaction hasn't updated your accounts data. To do this, post either a supplier invoice or bank payment using the non-vatable tax code, which is by default T9.

▼ Create a product invoice to record the sale of an item included in the VAT Margin scheme
  1. Go to Invoices and credits then select New invoice.  If you're using Sage 50 Accounts Professional, you can create a sales order or an invoice.
  2. Complete the Product Invoice as follows:
    Type From the drop-down list, choose Invoice.
    Format From the drop-down list, choose Product.
    Date Enter the date of sale.
    A/C Enter the required customer account reference. If you need to set up an account for the customer, create a customer record.
    Product Code Enter the required product code.
    Quantity Enter a quantity of 1.
    Price Enter the relevant selling price.
  3. On the Product Code, press F3 on your keyboard to open the Edit Item Line window.
  4. Enter the Tax Code as T9 then click OK.
  5. Click Save then Close.

The software updates the nominal, customer, and stock records when you update the invoice.

▼ Obtain and run the Output tax reports

Use the Output tax reports to calculate VAT due on items included in the VAT Margin scheme

When using the VAT Margin scheme, ensure you record and pay the correct VAT by:

  • Running the relevant Output tax reports
  • Manually add these figures to boxes 1 and 4 on the Sage Accounts VAT Return. Follow the post a journal to record the VAT payable on your next VAT Return section
  • The Output tax reports also show the gross sales and gross costs for each month. Follow the adjust boxes 6 and 7 on your VAT Return section to record these figures

Download the reports

The Output tax reports calculate at 20% tax. To calculate this at a different tax rate, you must edit the rate on the report. For more information about how to change this, contact our Sage technical support.

The Additional Reports Backup includes the output tax reports:

This backup is only available to SageCover customers. To access it, you must log in to My Sage. Follow our Additional reports backups download and installation article for more information.

Run the reports

Output tax reports show total sales, purchases, and output VAT due on second-hand goods for the month. There are 12 monthly reports. To calculate VAT for multiple months, run the reports for the desired period and add the figures to find the output tax due.

  1. Go to Transactions, select Reports, then VAT SCHEME REPORTS. 
  2. Select the Output tax report for the relevant month then select Print.
  3. In the boxes provided, enter the stock codes for your second-hand goods, then click OK.
  4. Complete the Print window as required then click OK.

    Repeat steps 2 - 4 for other months in your VAT quarter. 
▼ Post a journal to record the VAT payable on your next VAT Return

In this example, the Output tax report calculates VAT payable to the HMRC as £150. This journal also updates the Sales nominal code for the sale of the car. If you produce monthly management reports, post this journal on a monthly basis before printing your management reports. Or, you can post them at the end of each VAT period.

  1. Go to Nominal codes then select Journal entry.
  2. Enter the date and reference for the journal.
  3. Enter the relevant details to record the output tax, for example:
    N/C Name Details T/C Debit Credit
    2200 Sales Tax Control Account VAT Liability T1   150
    Sales nominal code Sales nominal code VAT Liability T9 150  
  4. Click Save then Close.

The journals move the VAT amount from the original Sales nominal code to the Sales Tax Control Account. The next time you run your VAT Return this amount appears in box 1.

▼ Adjust boxes 6 and 7 figures on your VAT return

Box 6 - To calculate the value to correct box 6.

  • Calculate the net sales figure for the month. Subtract the VAT on Profit figure from the Sales figure
  • Add together the net sales figures for each relevant month

Box 7 - To calculate the value to correct box 7.

  • Add together the costs figures for each of the relevant Output Tax reports
  1. Go to VAT then select VAT Return.
  2. Click Back up to back up your data.
  3. Enter the dates for the VAT period then click Calculate VAT Return.
  4. Click Make adjustments then double-click the figure in box 6.
  5. Enter Margin scheme in the Reason then enter the value you calculated above.
  6. Click Save.
  7. Double-click the figure in box 7.
  8. Enter Margin scheme in the Reason then enter the value you calculated above.
  9. Click Save then Close.
 NOTE: If you're using any other VAT scheme, you'll need to contact your accountant directly. This is because the software is unable to calculate the VAT correctly. 
[BCB:19:UK - Sales message :ECB]
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