Our client is a car dealer and operates the margin scheme. He has purchased a classic car which is a collectors’ item and has imported the car into the UK from the US. I understand that the car was involved in some historic event in the US.
Our client asked us, can he apply the 5% reduced rate when he sells the car?
Well, not quite. There is a 5% effective VAT rate on the importation of collectors’ items, where the VAT is calculated on a reduced valuation. Normally the sale in the UK would take the standard rate of 20%; the exception to this is use of the margin scheme.
Where goods have been acquired which have had VAT charged on their purchase, they are not normally eligible for the margin scheme.
However, VAT notice 718 states that “you may opt to use the margin scheme for:
Works of art, antiques and collectors’ items which you have imported from countries outside the EU and
Works or art you have obtained (which were supplied in the UK or acquired from another member state) from creators or their heirs, whether or not VAT was charged on their purchase or acquisition.”
In order to use the Margin Scheme in the above circumstances, our client needs to meet the following conditions:
• Write to the written enquiries team at HMRC to inform them that he will take up the option and specify the date from which he will be applying the option;
• The option must be exercised for a period of at least two years, after which he must inform HMRC in writing as and when he wishes to stop using the scheme;
• The scheme must be used for ALL transactions and goods listed above and not just in respect of certain categories of goods, and
• If, having opted to use the scheme, he decides to sell any goods covered by the option outside the scheme, then he is not entitled to recover any input tax on those goods until the period in which he accounts for VAT on their sale.
• Assuming the car was entered under the procedure for collectors’ items, the import VAT charged will have been at the rate of 5%. The client can therefore opt to use the margin scheme and account for standard rate VAT out of the margin. The purchase price for the purpose of the scheme will be the value for VAT at import, plus the 5% import VAT [1]
[1] Reproduced from Croner Taxwise