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When Is A Horse Like A Second Hand Car

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Julie Butler - Expert Author

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Published originally  27 January 2015

There is an opportunity for horse dealers and “pinhookers” to benefit from this scheme and help the profitability of struggling equine businesses. It is essential for all equine businesses to confirm the VAT position. The recent case of Alexander Spencer-Churchill (TC3763) has highlighted the need to consider single transactions in the context of VAT and business registration. The treatment of liveries and horse sales can be very complex and misunderstood.

Purchasing and selling horses under the Second Hand Goods Margin Scheme

The Second Hand Goods Margin Scheme is an optional VAT scheme which can be used in certain circumstances to benefit the business. This Scheme is most beneficial in the situation where the trader purchases goods from businesses or individuals that are not registered for VAT, and therefore is unable to reclaim input VAT on the purchase. Normally this would mean that when the business comes to sell the item, they would be liable for output VAT on the full sale price. This puts businesses at a certain disadvantage if they regularly deal with this type of customer. The terms of using the Scheme are quite strict, however the basic principles are as follows:

•                The Scheme allows a lower rate of input or output? What is the lower rate? VAT to be paid over, when the seller which you purchased the item from is not registered for VAT, ie an individual.

•                The goods must be second hand when purchased, and cannot be, in the case of horses and ponies, animals that have been bred by yourself.

•                A detailed stock book must be maintained to ensure that the purchase price of the stock is easily able to be identified, and therefore the margin on the sale is able to be calculated.

•                The Scheme can be used in conjunction with sales which do not qualify under the Scheme (ie sales not of second hand goods or those which input VAT is able to be claimed).

Benefit of detailed record keeping

One of the main conditions of using the Scheme, is that very detailed record keeping in relation to the purchase of the stock must be maintained. This is to ensure that there are no abuses of the system. The stock book should contain the following entries:

•                Stock number in numerical sequence

•                Date of purchase

•                Purchase invoice number

•                Name of seller

•                Details of the product purchased – in terms of a horse or pony, this would need to include the details such as:

  •   Unique identifying passport number
  •   Colour
  •   Sex
  •   Type of breed
  •   Age (if known)
  •   Height
  •   Stable name (if known)
  •   Distinctive markings

There are specific forms which can be obtained from the British Equestrian Trading Association (BETA), as an alternative to keeping detailed records such as the above.

Sales invoices

The details that are required to be disclosed on the sales invoice will be slightly different from that of normal sales invoices that are normally raised, as these will fall within the Margin Scheme rules. The sales invoice should therefore disclose the following additional items:

•                A method to cross reference the sales invoice to the stock book.

•                The output VAT on the sale MUST NOT be shown separately on the invoice, although output VAT will need to be paid over on this sale. Output VAT will need to be paid over on this sale but MUST NOT be shown separately on the invoice and therefore included within the total price?

•                The description “Margin Scheme – Second hand goods” must be disclosed on the invoice.

Practical advantages

The fact is that the sports horse industry has such a large mix of business and non-business players, ie VAT registered and non-VAT registered interactions, this scheme can be very useful to minimise the VAT disadvantage.

The recent tax tribunal cases of disputing the commerciality of equine businesses, Thorne and Murray, have highlighted the need for equine operations to consider evidence of commerciality. This scheme can be used to improve the structure of the operation including VAT registration and optimising VAT opportunities. This in turn can help with commerciality and profitability.


About the Author

Supplied by Julie Butler F.C.A. Butler & Co, Bennett House, The Dean, Alresford, Hampshire, SO24 9BH.  Tel: 01962 735544.  Email; j.butler@butler-co.co.uk, Website; www.butler-co.co.uk

Julie Butler F.C.A. is the author of Tax Planning for Farm and Land Diversification (Bloomsbury Professional), Equine Tax Planning ISBN: 0406966540, and Stanley: Taxation of Farmers and Landowners (LexisNexis).



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Article Published/Sorted/Amended on Scopulus 2015-03-13 09:00:43 in Tax Articles

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