Under the standard VAT scheme the amount of VAT paid to HMR&C equals the VAT on sales less the VAT on purchases. For second-hand dealers the majority of purchases will probably be from non-VAT registered members of the public, so there will be no VAT to claim back on the goods purchased.
The margin scheme therefore allows a second-hand dealer to account for VAT on the difference between the sales price & purchase price of goods sold – ie the margin. The normal VAT methods can be used for claiming back the VAT on items purchased from VAT-registered businesses and VAT on business overheads.
For further details go to
http://www.hmrc.gov.uk/vat/start/schemes/margin.htm
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