Revenue Note for Guidance

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Revenue Note for Guidance

87. Margin scheme – taxable dealers


This section provides the legal basis for the margin system whereby dealers in certain second-hand goods, works of art, antiques and collectors’ items pay VAT only on their profit margin. Since 1 January 2010, second-hand means of transport and agricultural machinery are also part of the margin scheme, having been moved from the special schemes that applied to these supplies prior to that date.

The rate of VAT applicable to a supply under the margin scheme depends on what type of goods are involved. The general rule is that the rate applicable to a normal supply is the rate applicable to a margin scheme supply, but there are some exceptions to this. This scheme is optional - dealers in these goods can, if they wish, apply the normal VAT rules to any supply.


(1) Subsection (1) contains the definitions for the section. It prescribes the goods which qualify for the margin scheme, and who can use it. In general, the scheme applies to second-hand goods bought in for resale by dealers from specific sources. These sources are, basically, persons who paid VAT (or are deemed to have paid VAT) on their initial purchase of the goods without deductibility for that VAT. Typically, these would be private individuals or exempt bodies. The disposal by an insurance company of repossessed goods is also included.

The other items covered by the margin scheme are specified works of art, collectors’ items and antiques. Second-hand means of transport and agricultural machinery, which had their own special schemes up to end-2009, are also included in the definition of “second-hand goods”. Precious metals and precious stones are excluded from the margin scheme. Scrap metal is also excluded from the margin scheme.

To participate in the scheme a dealer must be registered for VAT and be in the business of buying and selling the goods in question, either on his/her own behalf or on an agency basis for others. The effect of this definition is to exclude an accountable person who is in a different line of business but who happens to dispose of some second-hand goods as an incidental part of his/her business. The definition of taxable dealer also includes a finance company that purchases margin scheme goods for onward supply as part of a hire purchase agreement financed by the company.

The central concept in this section is the definition of "profit margin". The profit margin is the difference between the selling price and the purchase price of a good. It is deemed to be tax-inclusive. If the purchase price is greater than the selling price, the profit margin is nil and there is no liability to VAT. There is also no entitlement to a credit or repayment in the event of a loss (but see subsection (8)).

(2) Subsection (2) makes provision for an option to apply the margin scheme. A dealer could, depending on the circumstances of a sale, decide that it is more appropriate to apply the normal VAT rules. One of the features of the margin scheme is that the customer is not entitled to recover the VAT included by the dealer in the selling price. So, if the customer is a VAT-registered person it may be in the interests of both the dealer and the customer to apply the normal rules.

(2A) Subsection (2A) provides that the margin scheme cannot be applied to the intra-Community supply of a new means of transport. In such circumstances the normal rules apply.

(3) The taxable amount in a margin scheme transaction is the profit margin of the dealer less the VAT included in that margin.


Dealer buys second-hand furniture for €150 and sells it for €180. The profit margin is €30 inclusive of VAT at 23%. The VAT liability is €5.60 i.e. (€30/123) × 23. The taxable amount is €30 - €5.60 = €24.40.

(4) A dealer is permitted, under subsection (4), to apply the margin scheme to all his/her transactions in:

  • works of art, collectors’ items or antiques which he/she has imported,
  • works of art supplied to him/her by the creator or the creator’s successors in title, or
  • works of art supplied to him/her by an accountable person other than a dealer, where the supply of such works of art was liable to VAT at the 13.5% rate by virtue of section 48(1)(c).

This option applies even when the goods would not normally be eligible, because of their source, for the margin scheme.

(4)(b) If a dealer opts to apply this extended scheme, he/she must opt in for a period of at least 2 years, subject to the opt-out possibility provided by subsection (7) below.

(5) Subsection (5) provides that where a taxable dealer opts to apply subsection (4), the purchase price for the purposes of calculating the profit margin in the case of imports (i.e. goods from outside the EU) is the value for customs purposes plus VAT at import – see section 53.

(6) Subsection (6) provides that if the dealer opts into the extended scheme under subsection (4), he/she cannot claim a credit for the VAT suffered on the purchase or importation of the goods (but see subsection (7)).

The input credit is not claimable because the dealer will be accounting for VAT only on his/her profit margin on the resale.

(7) Subsection (7) provides that a dealer operating the extended scheme may apply the normal VAT rules to any of the subsection (4)(a) transactions. In such case the dealer cannot claim a credit for any VAT paid by him/her on purchase or import until the taxable period in which the dealer is accounting for his/her sale.

This is because he/she will not know until the point of sale whether he/she is accounting for this transaction under the normal scheme or under the margin scheme. In this way, all stock-on-hand is treated in the same way as regards deductibility until the point of sale.

(8) Subsection (8) provides for simplified arrangements for the taxation of low value goods that qualify for the margin scheme. These are goods for which the keeping of detailed individual records of profit margins would be excessively onerous.

These arrangements apply where each item is resold for less than €635. The simplified arrangements provide that the dealer accounts for VAT on his/her aggregate profit margin. The aggregate margin is the difference between the value of his/her sales and purchases of all low value margin scheme goods for the taxable period.

  • (8)(a) Paragraph (a) defines aggregate margin and low value margin scheme goods for the purposes of the subsection. Where, in calculating the aggregate margin, the value of the purchases exceeds the value of the sales, the subsection provides that the negative margin does not give rise to a repayment nor should it be set off against any other liability for that period. Instead, it is carried forward and added to the purchases of low value margin scheme goods in calculating the aggregate margin for the next taxable period.
  • (8)(b) Paragraph (b) gives the formula for calculating the amount of tax in the aggregate margin. (The aggregate margin itself is tax inclusive). A separate aggregate margin must be calculated at each tax rate.
  • (8)(c) Paragraph (c) provides that where a low value margin scheme good is subsequently sold for more than €635 it no longer qualifies for the simplified arrangements. Instead, the sale must be dealt with under the margin scheme. This means that the purchase price of that good should be deducted from the total purchases of low value margin scheme goods for the period in which the sale takes place. The subsection does not lay down the actual method of calculating the purchase figure. The purchase price may be based on the average mark-up achieved in the business or other appropriate measures.


Period 1






1,000 including VAT

VAT payable

1,000/123 × 23 = 186.99

Period 2







VAT payable

nil – negative margin

Period 3





Negative margin for period 2



500 including VAT

VAT payable

500/123 × 23 = 93.50

This example assumes that all goods sold qualify for the simplified arrangements and all are liable at the 23% standard VAT rate.

If the dealer has sales of low value margin scheme goods at more than one rate, a separate aggregate margin must be calculated for each rate. Where a negative amount arises in calculating the aggregate margin at any tax rate, that amount should be carried forward and used in calculating the aggregate margin at that rate for the next period.

(9) Where a dealer applies the margin scheme to a transaction, he/she must not indicate the VAT separately on the invoice. This rule ensures that the customer cannot reclaim any VAT relating to the transaction under the margin scheme. It also means that the customer is not aware of the dealer’s profit margin.

(10) Where a dealer sells an item under the margin scheme to a VAT-registered customer in another Member State, Irish VAT still applies to the transaction. It is not zero-rated as an intra-Community supply, which would be the rule in the case of a normal supply.

The dealer could opt to apply the normal scheme and zero-rate the supply, but, of course, he/she cannot take a VAT credit in respect of the purchase of the goods because he/she will not have a VAT invoice from his/her supplier – see subsection (1) above.

(11) Subsection (11) is a technical provision arising out of the rule in subsection (10), deeming the Member State of dispatch to be the legal place of supply in an intra-Community margin scheme transaction.

(12) Subsection (12) is a technical provision dealing with commission sales where a taxable dealer acts on behalf of a principal. It establishes that the time of supply by the principal to the dealer is the same as the time of supply by the dealer to the customer.

(13) Subsection (13) caters for the future taxation of goods sold by a dealer under the margin scheme to an accountable person. If the accountable person subsequently disposes of such goods in the course or furtherance of business, this provision ensures that the supply by the accountable person is not exempt and is treated like any other taxable disposal. In other words, paragraph 12 of Schedule 1 does not apply. However, the subsequent supply continues to be exempt if:

  • the goods are motor vehicles for which no deductibility was allowed, or
  • the goods are used solely in the course of an exempted activity.

(14) Subsection (14), which applies from 3 April 2010, deals with motor vehicles used by taxable dealers for business purposes – for example, as demo models.

(14)(a) Paragraph (a) provides that when the taxable dealer registers the vehicle in his/her name, a self-supply occurs and the dealer accounts for the VAT on that self-supply:

(i) the vehicle is treated as if it is removed from stock,

(ii) there is a deemed self-supply, and

(iii) the VAT chargeable under paragraph (b) is not deductible.

(14)(b) Paragraph (b) provides that where the dealer subsequently sells the vehicle, the margin scheme may apply and the provision sets out how the profit margin is to be calculated:

(i) the vehicle is deemed to be reacquired under the margin scheme,

(ii) for calculating the profit margin, the purchase price is the sum of the amount on which VAT was charged plus the VAT plus the VRT.

Relevant Date: Finance Act 2020