What Is VAT Marginal?

Value added tax (VAT) is a type of consumer tax levied in Europe. It is the European equivalent of sales tax or goods and services tax (GST). VAT is paid on taxable goods and services at the point of sale. VAT marginal is an accounting method used primarily for the sale of used goods.

Definition

• VAT marginal is an accounting method in which you calculate VAT on the value your business adds to the selling price of an item, instead of just the selling price.

Benefits

• VAT marginal can reduce the amount of VAT your business has to pay if you sell used goods, works of art, antiques or collectors' items. VAT marginal can also be beneficial if you sell an item for less than you paid for it: With a margin scheme, you won't owe VAT on the full selling price.

Eligible Goods

• In order to use a VAT marginal scheme, you must sell eligible goods. Eligible goods are used goods, defined as goods that are suitable for further use; works of art like paintings, photographs and drawings; and antiques more than 100 years old.

Ineligible Goods

• Precious metals, investment gold and precious stones cannot be sold under the VAT marginal scheme. Technical drawings, maps and plans are not considered works of arts and are therefore not eligible for VAT marginal accounting. Items that have been manufactured --- even if they have been hand decorated afterward --- are also not eligible for the VAT margin scheme. Works of art that are produced in quantity are generally not eligible. This includes limited edition photographs when the edition exceeds 30 items and enamels on copper and sculpture casts that were produced in quantities of more than eight.

Calculating VAT Margin

• To calculate the VAT margin, subtract the purchase price from the selling price to get the gross margin. For example, if you purchase a painting for £2000 and sell it for £2900, your gross margin is £900. You would pay VAT on the gross margin of £900.