How does the differential taxation work for value added tax?
April 18, 2023 | 50,00 EUR | answered by Oliver Götzinger
Dear tax advisor,
my name is Hildegard Baumgart and I run a small second-hand store. Lately, I have been studying the topic of value-added tax intensively and came across the margin scheme. Unfortunately, I am having trouble understanding the principle behind it and how it could affect my business.
Currently, I calculate the value-added tax at the standard rate of 19% on the selling price of my second-hand goods. However, I have heard that there is an option to calculate the value-added tax using the margin scheme. What exactly does this mean and how does it work in practice?
I am concerned that I may be paying unnecessary taxes or incorrectly calculating them, as I do not fully understand how the margin scheme works. Are there requirements that I need to meet in order to use the margin scheme? What are the advantages and disadvantages of this method of calculating value-added tax for my business?
I would greatly appreciate it if you could explain to me how the margin scheme works for value-added tax and whether it would be advisable to apply this method in my second-hand store. I would be very grateful for your support and guidance.
Sincerely,
Hildegard Baumgart
Dear Mrs. Baumgart,
Thank you for your inquiry regarding the differential taxation of value added tax. I understand that it can be confusing for many entrepreneurs to navigate through tax regulations. I am happy to explain to you in detail what differential taxation entails and how it can be applied to your second-hand store.
Differential taxation is a special regulation for used goods that can be applied under certain conditions. In this case, the value added tax is not calculated on the full selling price, but on the difference between the purchase and selling price. This means that only the profit you make from the sale is subject to VAT.
In order to apply differential taxation, certain requirements must be met. Firstly, as an entrepreneur, you must apply for differential taxation and keep separate records of the purchase and selling prices. Additionally, the purchase price of the used item must not have been subject to VAT or the goods were acquired before January 1, 2013.
Differential taxation has both advantages and disadvantages for your business. A major advantage is that you do not have to pay the full VAT on the selling price, but only on the difference. This can improve your margins and make your prices more competitive. However, implementing and documenting differential taxation also requires a certain amount of effort.
In your second-hand store, differential taxation could be beneficial since you often sell used items. By applying this regulation, you could reduce your tax burden and increase your profits. However, I recommend contacting a local tax advisor to discuss the specific requirements and implications for your business.
I hope this information has been helpful to you and I am available to answer any further questions you may have. Thank you for your interest and inquiry.
Sincerely,
Oliver Götzinger
