Are you trading used, second-hand, pre-owned mobile phones and other devices in your repair shop? You could increase your profit with the VAT Margin Scheme. Using this scheme, you pay VAT on the marginal profit you make on your sale rather than paying tax on the full selling price.
Here are the key things that EU retailers need to know about this Margin Scheme.
Why would I want to use the VAT Margin Scheme?
You do not have to use the margin schemes, they’re optional. However, using a Margin Scheme will reduce the Value Added Tax you have to pay on your sales of used mobile phones.
Without a Margin Scheme, you would have to account for VAT on the full selling price of each item.
VAT Margin Scheme allows you to account for VAT on the difference between the price you paid for an item and the price you sold it for.
Do I have to be VAT registered for this Scheme?
Yes, the Margin Scheme has been designed for VAT registered businesses. And if you wish to apply for this scheme, you should be a VAT registered individual who deals with the business of buying and selling second-hand mobile phones or other devices and goods.
Although, if you purchase a second-hand phone from a non-VAT registered individual and/or sell it to another non-registered individual, you can still apply for the Margin Scheme since you, yourself, are a registered business.
Can I sell all used devices under the Margin Scheme?
To use the margin scheme, you must comply with the conditions of:
- eligible item
- eligible circumstances
Since all kinds of second-hand devices are eligible items for the Margin Scheme, you just have to make sure that you buy them under the eligible circumstances and keep the necessary records.
Eligible circumstances are those in which you were not charged normal VAT when you purchased the item.
Here are the record-keeping conditions for purchase and sale invoices of each item.
|Date of purchase||Date of sale|
|Purchase invoice number (unless you made out the purchase invoice yourself)||Sales invoice number|
|Name, Business name (if any), and address of the seller and the buyer (you)||Name, Business name (if any), and address of the seller (you) and the buyer|
|Description of the item||Description of the item|
|A Stock Book Number of the Item
(if purchased from a VAT registered business)
|Purchase price||Selling price|
|The margin on sale (the difference between the purchase price and selling price)|
|Marginal VAT (margin × 1/6)|
How do I calculate the buying and selling prices of my eligible goods for VAT Margin?
Your purchase price is everything which you had to pay for the goods. It includes incidental expenses directly linked to the purchase which you were charged by your supplier, for example:
- insurance costs
The rule is also applicable the other way around i.e. when you sell these goods on and charge your customer with any commission, packaging, transport, and insurance costs, they will be included in your selling price. However, you cannot add other overhead expenses (repair or refurb costs) in the selling price.
Can I reclaim my old normal VAT sales for the Margin Scheme?
Unfortunately, that’s not possible. If you have sold an item under the normal VAT rules, you cannot go back and apply a Margin Scheme to that sale later.
What to do next?
If you run a cellphone repair shop and sell repaired handsets & trade-ins in the UK, Ireland, or Europe, you must go for the VAT Margin feature of RepairDesk. It will calculate the amount of tax you need to pay on each used device sale, so you can evaluate your profits. Fill out this form and we’ll notify you as soon as this feature is available in RepairDesk.