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VAT - Automatically calculate VAT using the Marginal Scheme

Ability to automatically calculate VAT using the marginal scheme.

Purpose: To easily show correct VAT amounts when VAT is only charged on the Margin between Purchase price and Selling Price.

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AdminXero Team (Admin, Xero) shared this idea  ·   ·  Report…  ·  Admin →
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submitted  ·  AdminHannah G (Admin, Xero) responded  · 

Hi everyone, thanks for your interest in this idea.

For now, I wanted to share that we're aware some users have the following process to record their transactions. The example uses a vehicle with a purchase price of £1500, and a sale price of £2000.

  1. Record the purchase of the vehicle on a purchase Bill for the full purchase price of £1500 with a tax rate of VAT Exempt. So the purchase is recorded in box 7 on the VAT return.
  2. Record the sale of the vehicle on an Invoice for the full £2000 - using the Tax Exclusive option, and then manually changing the VAT calculated to the required amount - £83.33 (i.e. 20% on the profit of £416.87 or 1/6 of £500) by clicking the small plus box above the Tax Rate.

This will mean that you only charge £83.33 VAT for the overall profit figure, and ensuring the correct amounts are reflected in boxes 1, 3, 5 and 6.

You could also create a custom invoice template to use with the invoices that hides the VAT detail. You'd need to insert the TaxInclusiveLineAmount field and remove the other Tax reference fields.

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  • Paul Cavanagh commented  ·   ·  Report

    you can currently do this on xero using the old customer invoicing tab but this getting retired on the 1st September 2024

  • Gemma Dyer commented  ·   ·  Report

    Margin scheme invoice without showing VAT to customer as this shows the VAT on the profit made, and we do not want to show the customer the profit made. Currently preparing invoices separately and uploading with margin information to Xero afterwards.

  • Julie Romain commented  ·   ·  Report

    Had a couple of clients lately who would greatly benefit from this, please create the option, ideally popping the required wording on the invoice but not the VAT. Currently doing manual journals.

  • KIRSTIE BAKER commented  ·   ·  Report

    Xero please write the margin scheme into your software to make life easier and quicker. Manual calculations are ok occasionally but its a bit tedious when processing large volumes of sales.

  • Michelle Brooks commented  ·   ·  Report

    This will mean the difference between my clients who specialise in second hand markets using Xero (or not!)

  • Michael James commented  ·   ·  Report

    Support for the margin scheme should be easy to implement and would save so much manual time and effort as well as addressing the required record keeping for HMRC. If done properly it would certainly increase number of companies using Xero.

  • Roy Brown commented  ·   ·  Report

    I am sure there are many Xero users that need this! It cannot be functionality that would be difficult for Xero to implement.

  • Aimee Gilmore commented  ·   ·  Report

    This would be super useful for clients who are using the margin scheme

  • Roy Brown commented  ·   ·  Report

    This is very important to my clients who buy and sell top end cars. This is a standard HMRC VAT scheme which should be included as a core functionality of Xero.

  • Ashley Taylor commented  ·   ·  Report

    Is there an update with regard to the VAT calculations?

  • Mark Sharples commented  ·   ·  Report

    We have clients using the second hand margin scheme and would really appreciate a solution.

    The best we have at the moment is to use Products and Services to track stock, set stock items with the same purchase/sale price, then add in the margin at 20% VAT when raising the sale.

    The only thing this solution doesn't cover is the simultaneous release of the box 7 figures when the stock is sold rather than when it is purchased - if this could be implemented (e.g. maybe a switch to release stock items on sale rather than purchase) then the system would work.

  • Tim Vogel commented  ·   ·  Report

    clients moving to sage as this does not exist

  • Roy Brown commented  ·   ·  Report

    I cannot understand why this is not standard VAT functionality in Xero. Not only for car dealers but also any VAT registered company that must use the margin scheme. Xero does so much promotional work about tax being digital then omitted a fundamental VAT scheme. As a Xero champion I thought they wanted to be the best go to accounting software for SME’s Maybe I got it wrong and need to look at other solutions. Be great to here from Xero on this.

  • Rich Beale commented  ·   ·  Report

    VAT Margin Scheme (UK)
    This would be really useful for second-hand cars and antiques businesses. Current this has to be done manually or Xero not recommended