What are margin goods?
Margin goods are used items that you bought without VAT, often from private individuals or from entrepreneurs who could not deduct VAT themselves. Think second-hand furniture, books or electronics.
Conditions for the margin scheme
The key rule: you may only apply the margin scheme if no VAT was deducted at the time of purchase. So if you buy from a private individual, or from an entrepreneur who has also not deducted VAT, you may use the margin scheme.
Choice of normal VAT calculation
You may always choose to charge VAT on the full selling price of margin goods, rather than just on the profit. This can be useful if your customer is an entrepreneur and can deduct VAT.
Example 1: Margin scheme
- Purchase price: €4,000
- Profit margin: €1,000
- Sales price excl. VAT: €5,000
- VAT (21% on profit of €1,000): €210
- Retail price incl. VAT: €5,210
(You may not put this €210 VAT separately on the invoice).
Example 2: Ordinary VAT scheme
- Purchase price: €4,000
- Profit margin: €1,000
- Sales price excl. VAT: €5,000
- VAT (21% over €5,000): €1.050
- Retail price incl. VAT: €6,050
What does this mean for your customer?
- Under the margin scheme, your customer pays €5,210 and cannot reclaim VAT.
- Under the ordinary scheme, he pays €6,050, but can reclaim €1,050 as input tax. So net it costs him €5,000.
For you as a seller, it makes no difference: in both cases you will keep €5,000.
Administration for margin goods
If you opt for the normal VAT regime, then the purchased goods are no longer allowed to appear as margin goods in your accounts. You remove the purchase amount from margin purchases and record the sales as normal, VAT-taxed sales.
When trading in margin goods, you can calculate VAT in two ways. With the individual method, you calculate VAT per product sold and keep track of everything per item. With the globalisation method, you calculate VAT correctly on the total profit margin of a return period.
Calculating VAT using the individual method
With the individual method, you charge VAT per product sold. Only positive margins count; loss sales are not offset.
Example
- Profit margin incl. VAT: €10,000
- VAT (21/121 × €10,000): €1.736
- Profit margin excluding VAT: €8,264
In your VAT return, enter:
- Left column (revenue): €8,264
- Right-hand column (VAT): €1,736
Calculating VAT using the globalisation method
Under the globalisation method, you calculate VAT on the total profit margin of a return period (sales minus purchases). If the margin is positive, you multiply it by 21/121 or 9/109, depending on the rate.
Example:
- Sales: €40,000
- Purchases: €25,000
- Profit margin incl. VAT: €15,000
- VAT (21/121 × €15,000): €2.603
- Profit margin excluding VAT: €12,397
In your VAT return, enter:
- Left column (revenue): €12,397
- Right column (VAT): €2,603
Note: Do you trade in goods with different VAT rates (e.g. 21% and 9%)? If so, you need to calculate the margins for each rate separately.
Administrative obligations
If you sell margin goods, there are a few extra rules in addition to the normal accounting requirements. They apply to both the individual method and the globalisation method.
The four additional commitments
- Keep margin goods and other goods separate.
- Keep rate groups separate.
- Do not include VAT on the invoice.
- Draft a purchase statement for purchases of €500 or more.
Below you can read exactly what this means.
- Keep margin goods and other goods separate
Make sure your accounts clearly state what is margin and what is not.
- Keep rate groups separate
Do you have margin goods with different VAT rates (e.g. 21% and 9%)? Then you need to calculate the margin for each rate group.
Example: an antique dealer keeps furniture (21%) and books (9%) separately in the records.
- Do not mention VAT on the invoice
There should be no VAT on the invoice. Instead, state:
- Special scheme - used goods
- Draw up a purchase statement for purchases of €500 or more
Do you buy margin goods of €500 or more? Get the supplier to sign a purchase declaration. This will prove that there was no deductible VAT on them.
Which method do you use?
Whether you should use the individual method or the globalisation method depends on the goods you sell.
- For certain categories (such as cars, clothing and books), the globalisation method is mandatory.
- For all other goods, use the individual method. Keep in mind that this method does not allow you to set off negative margins, while the globalisation method does.
- Are you an auctioneer or do you work as an intermediary? Then you may not apply the globalisation method.
Declaring margin goods
The method you choose determines how you declare VAT.
- Under the globalisation method, you are allowed to offset negative margins against positive margins in a later period.
- With the individual method, you cannot; you just enter the VAT by margin.
In your sales tax return, enter VAT in section 1:
- Right-hand column: VAT amount
- Left column: profit margin excluding VAT
Do you also have normal turnover in addition to margin turnover? Then add both amounts together.
Offsetting negative margins
If you sell at a loss, you won't get a VAT refund. If you use the globalisation method, you can offset a negative margin against a positive margin within the same year. If you want to know exactly how this works, check the website of the Tax Office..
