What are margin goods?
Margin goods are second-hand goods that fall under the conditions of the margin scheme, such as second-hand furniture, books or electronics. Simply purchasing without separate VAT is not enough: your role as a trader and the position of the supplier also count.
Conditions for the margin scheme
The sale must be part of your normal business operations as a dealer. You buy the used goods within the EU from an authorised supplier, such as a private individual, a qualifying exempt entrepreneur, a small businesses scheme (KOR) entrepreneur who used the good as a business asset, or another margin scheme dealer. With that KOR supplier, earlier VAT deduction may indeed have taken place. Therefore, check the conditions of the Netherlands Tax and Customs Administration; “no VAT has been deducted” is not a complete test.
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
- Target margin excluding VAT and before other costs: €1,000
- Sales price excl. VAT: €5,000
- VAT (21% on the margin excluding VAT 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
- Target margin excluding VAT and before other costs: €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 standard scheme, he pays €6,050, but if he meets the deduction conditions, he can claim back €1,050 as input tax. Net, it therefore costs him €5,000.
In both examples, you receive €5,000 after payment of VAT. After purchasing goods worth €4,000, €1,000 remains before other operating expenses; €5,000 is therefore not your profit. This example is based on the same intended margin, not the same consumer price.
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
Under the individual method, you calculate VAT per product sold. Only positive margins count; loss-making sales are not offset. For example, do you buy for €400 and sell for a fixed price of €521? The margin including VAT is €121: of this, €21 is VAT (21/121 × €121) and €100 is margin excluding VAT, before other costs.
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
If you purchase for €500 or more from a single supplier, draw up a purchase statement. State the delivery date, names and addresses, description, quantity and amount; for a motor vehicle, also the registration number. Add the required statement on VAT deduction. For a used business asset from a VAT threshold scheme (KOR) supplier, the specific statement regarding their KOR exemption applies. Have the supplier sign and keep a copy. See the requirements for the purchase statement.
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
A negative margin does not in itself result in a VAT refund. Under the globalisation method, you can offset it against a positive margin in a later period of the same year. After that, annual balancing and, under certain conditions, offset against a subsequent year may be possible. Keep tax rate groups separate and follow the procedure for negative profit margins.
For the turnover threshold of the KOR sales revenue counts, not just the margin. Also check out our explanation of VAT return. When outsourcing, discuss how margin trading should be handled; this does not automatically fall under every standard package.
