VAT is chargeable on the full values of second hand goods sold by a registered person. However, this can lead to anomalies when dealing with some goods and it is in recognition of this that the VAT for second hand goods called second hand schemes were introduced by HM Revenue and Customs. The classes of goods covered by the schemes are:
The standard method of accounting for VAT is to charge VAT on the whole of the selling price, deduct the VAT on goods bought and account the difference to the VAT office. If the person from whom you purchased the goods was not registered for VAT then there would be no input tax to deduct and the amount of VAT payable to VAT office will increase. This is not the intention of the tax authority because the amount of the VAT payable would be related to the selling price of the goods and would have no relationship with the value added.
Under the second hand scheme, each item must be separately identified in the records and the profit margin on each individual item is calculated. The profit is taken as being the VAT-inclusive figure of value added and the VAT element can be calculated using the fractions.
Rate of VAT
|
VAT fraction
|
| Standard rate – 20% |
1/6
|
| Reduced rate of tax – 5% |
1/21
|
Zero rated goods have no VAT on them to calculate.
However, where an item is sold at a loss there is no relief given, the loss cannot be set against other profits.
Concise Accountancy - Making accounting for VAT simple for businesses
