The profit margin on which VAT is payable under the margin scheme consists of the difference between the selling price of the goods and the purchase price.<\/p>\n\n\n\n
The margin scheme under VAT applies to the supply of second-hand goods. These are goods that can be reused in their current condition (or after repair). The margin scheme applies if these goods have been acquired from a person other than a VAT-registered trader (a private individual) or from a reseller who applies the margin scheme.<\/p>\n\n\n\n
When purchasing such goods, the supplier cannot charge VAT. Consequently, no VAT can, of course, be deducted in respect of the purchase. The (residual) VAT is embedded in the goods. The margin scheme prevents double taxation of VAT by calculating VAT not on the selling price, but on the margin. The margin is the difference between the selling price and the purchase price.<\/p>\n\n\n\n
A car dealer buys a car from a private individual for \u20ac10,000 and sells it to another private individual for \u20ac15,000. Leaving the BPM aside, without the margin scheme, VAT would have to be paid on: (21\/121) * \u20ac15,000 = \u20ac2,603. The VAT included in the \u20ac10,000 purchase price may not be deducted.<\/p>\n\n\n\n
If the margin scheme is applied, VAT must be paid on the margin. The margin amounts to \u20ac15,000 \u2013 \u20ac10,000 = \u20ac5,000. The VAT payable is therefore: (21\/121) * \u20ac5,000 = \u20ac867.<\/p>\n\n\n\n