Second-Hand Margin Scheme Question

Accounting
1

First of all, I’d just like to say how great I think QuickFile is having just migrated 3 trading quarters from our antiquated desktop version of Solar accounts. But now to my question concerning an aspect of the second-hand margin scheme I haven’t found in the Q&A section.

Unlike the car sales industry which seems to be quite straightforward when it comes to calculating the profit on purchased and sold second-hand vehicles, the business I work for doesn’t sell-on used items in a straightforward way. We can buy a used item for stock and split its components into a number of sales (a bit like a scrap yard I guess). Therefore, we have an agreement with HMRC as follows:

  1. Record all second-hand stock purchases as zero rated for VAT
  2. Record all second-hand sales as zero rated for VAT
  3. At the end of a VAT quarter, subtract the quarter’s second-hand stock purchases from the quarter’s second-hand sales to produce a profit figure for the quarter’s second-hand sales
  4. Apply VAT to the second-hand sales profit figure and manually add the liability to the Box 5 figure on the return

Within QuickFile, I have added 2 nominal accounts for second-hand sales and second hand purchases which give me the figures I need to work with to calculate the profit for VAT liability. But I’m looking for a way to record a calculation within QuickFile.

Creating any sort of invoice involving the second-hand sales figure and the second-hand purchases figure adds extra numbers to the second-hand sales nominal account, which is inaccurate. I am wondering if there is a way to work with the figures in the 2 nominal accounts to achieve a profit figure which can have VAT applied to it, without affecting the reality of the sales figures. I am thinking something along the lines of using ‘holding accounts’ in the bank account section as there seems to be the ability to move figures about without affecting sales figures.

I’m sure there’s a way of doing this, but I don’t understand how QuickFile controls its relationships between transactions and nominal accounts. I don’t really want to experiment too much on live data either so I’m hoping someone can make a suggestion on how I can produce a profit calc for second-hand sales or simply say, “forget it, just do it manually on your VAT return!”

Thanks for any help.

2

Do you absolutely require your eventual box 6 and 7 values to be the original “inc VAT” totals, or is it OK for box 6 to adjust down to compensate for the amount box 5 goes up? If the former then the only way I can see to do it is with manual adjustments.

If the latter then you could conceivably do a zero-VAT credit note for the “profit” amount (sales minus purchases, maybe posted to a new nominal, say 4998 along the same lines as the flat rate scheme adjustment) and then a 20% VAT invoice for the same gross total (to the same nominal). That would calculate the margin VAT and put it in box 1 (and thence 3 and 5) but it would cause box 6 to go down by the same amount.

3

Thanks for the reply, your thoughts have triggered the idea for the zero-VAT credit note of the “profit” amount coming as refund from the S/H Sales nominal account. The natural action of Box 6 figure would be fine so I’ll try it and see what it looks like. Luckily, I know already what the VAT liability should be so it’s just a case of fudging it within the software!

4

I believe I have found a solution! Performing the following steps seems to have worked.

  1. Create a new nominal account named ‘S/H Margin VAT Adjustment’.

  2. Create a new holding account in the Merchant account section named ‘S/H Margin Scheme Holding Account’.

  3. Create a new client named ‘S/H Margin Scheme Invoicing’ with the ‘Default Sales Category’ defined as paying to the nominal account ‘S/H Margin VAT Adjustment’.

  4. Make a journal entry moving the (manually calculated) second-hand sales VAT liability amount from the ‘S/H Sales’ nominal account into the ‘S/H Margin Scheme Holding Account’. At this point, the ‘S/H Sales’ account figure has decreased and the ‘S/H Margin Scheme Holding Account’ has a minus figure matching the amount removed.

  5. Create a new VAT invoice for the ‘S/H Margin Scheme Invoicing’ client for the figure showing in the ‘S/H Margin Scheme Holding Account’ and record its payment into the ‘S/H Margin Scheme Holding Account’.

Result: the ‘S/H Margin Scheme Holding Account’ now shows a zero figure, the ‘S/H Margin VAT Adjustment’ nominal account contains a sales figure (less VAT) with the VAT liability added to the Box 5 total.

Thanks to @ian_roberts for triggering my train of thought to come to this!