Businesses that apply the margin scheme for VAT purposes must have purchase declarations for purchases made from private individuals.
Margin rules
The margin scheme prevents VAT being paid on VAT. When a private individual buys a good, such as a watch, they pay VAT to the supplier. The private individual cannot deduct this VAT.
Suppose the watch is purchased for €1,210, including €210 in VAT. After a few years, the private individual sells the watch for €600 to a second-hand watch dealer. The purchase price then includes a further €105 in VAT. The dealer is not allowed to deduct this VAT.
If the retailer then sells the watch to another private individual for €950, the selling price includes €165 in VAT. At that point, the total VAT on the watch is: €105 + €165 = €270.
However, if the trader is able to apply the margin scheme, they pay VAT on the margin. The margin amounts to: €950 – €600 = €350. The VAT on the margin comes to €60, meaning that the total VAT payable on the watch is: €105 + €60 = €165.
Procurement Statement
One of the conditions for applying the margin scheme is that the trader must receive a purchase declaration from the private individual from whom they are purchasing goods worth €600. Such a declaration must meet a number of conditions. In a recent ruling The Zeeland-West-Brabant District Court ruled that the handwritten inclusion of the word “margin arrangement” on a statement is not sufficient for that statement to qualify as a valid purchase declaration.
The court therefore upholds the additional VAT assessments. The court reduces the default penalties (10% of the additional VAT assessed) are reduced by the court because the additional VAT assessments already had a significant impact, as the VAT due exceeds the profit margin realised, with the result that the trader is incurring a loss on the transactions.