Global margin scheme: why it does not work for cars
Global margin scheme explained for car dealers: how global accounting works, why cars are excluded in many countries and what to use instead.
· 7 min read
The global margin scheme (global accounting) taxes a dealer's total margin per VAT period instead of the margin on each item. It suits low-value goods bought in bulk, not cars. The UK excludes motor vehicles outright, Germany allows the method only for items costing up to €750, and in practice car dealers across Europe must use the item-by-item margin scheme with a record for every vehicle.
What is the global margin scheme?
The global margin scheme is a simplified version of the margin scheme in which VAT is calculated on the difference between total sales and total purchases of margin goods in a tax period. Article 318 of the VAT Directive 2006/112/EC allows member states to offer it "in order to simplify the procedure for collecting the tax", for certain transactions or categories of dealers.
Under Article 318(2), the total margin is:
- the total of selling prices of margin-scheme goods supplied in the period, minus
- the total of purchase prices of margin-scheme goods bought in the same period.
VAT is then the VAT fraction of that total. Member states must ensure that dealers using it "do not enjoy unjustified advantage or sustain unjustified harm" (Article 318(3)). It is an option for member states, not a right for dealers, so each country decides whether and for which goods it applies.
Global accounting vs the item-by-item margin scheme
The two methods differ in what is compared with what. The item-by-item scheme matches each sale with the purchase of the same item; global accounting matches all sales with all purchases of the period.
| Item-by-item margin scheme | Global accounting | |
|---|---|---|
| Legal basis | Articles 313–315 | Article 318 |
| Unit of calculation | Each car | All eligible goods in the period |
| Stock records | Purchase and sale per item | Totals of purchases and sales |
| Losses | A loss on one item does not reduce VAT on another | Purchases reduce the period's total margin |
| Purchases not yet sold | No effect until sold | Reduce the margin when bought |
| Typical use | Cars, motorcycles, high-value goods | Low-value goods in bulk, parts |
The second and fifth rows explain why tax authorities do not want cars in global accounting. A dealer who bought twenty cars in December and sold five would show a negative total margin and pay no VAT for that period, effectively postponing tax on stock until it is sold.
For car dealers
Know your margin before you buy
MyCarDealer compares any car from an auction or listing with the market in your country and shows the net margin after VAT, transport and costs – and the maximum bid.
Request accessCan car dealers use global accounting for VAT?
In most cases, no. Where member states offer the method, they restrict it to goods for which tracking each item is impractical:
- United Kingdom. HMRC's guidance on the global accounting scheme lists motor vehicles, including motorcycles, among goods that cannot be included, together with caravans and motor caravans, boats and aircraft. Goods bought for more than £500 per item are also excluded. Vehicles bought for scrap and broken up for parts are an exception for the components.
- Germany. § 25a(4) UStG allows a "Gesamtdifferenz" only for items whose purchase price does not exceed €750. Almost every car a dealer retails costs more than that.
- Netherlands. The Dutch "globalisatie" applies to an exhaustive list of goods in the implementing regulations, with special rules for car dismantlers who sell parts. Retail used cars are handled item by item.
If you also run a parts or dismantling business, global accounting may be available for that activity in your country. Check national rules before mixing the two in one set of books.
Why the item-by-item method is better for car stock anyway
For cars, the item-by-item method is not only compulsory in practice but also more useful. Each car has a VIN, a purchase price and a selling price, so the per-item margin is already in your stock system. It tells you which cars made money and which did not, which a period total cannot.
The method does have one cost: losses cannot be offset. A Polish dealer at 23% who sells one margin car at a €1,000 loss and another at a €3,000 profit pays VAT of €3,000 × 23/123 = €561 on the profitable car, with no relief for the loss. Our list of second-hand margin scheme mistakes explains why trying to net them is a common error.
What records are needed for margin-scheme cars?
Each margin car needs a trail from purchase to sale that an inspector can follow. Keep, per vehicle:
- Stock book entry with VIN, make, model, date of purchase and purchase price.
- Purchase evidence: the purchase invoice with the margin mention from a dealer, or a purchase contract and ID copy for a private seller.
- Proof of eligibility: where the car came from a business, confirmation that the supplier could not deduct VAT or applied the margin scheme.
- Sales invoice with the "Margin scheme — Second-hand goods" mention, no VAT shown separately.
- Margin calculation: selling price minus purchase price, VAT fraction at your rate.
- Payment records for both purchase and sale.
Costs such as repairs, transport and preparation go in your normal accounts with input VAT deducted where invoiced; they do not enter the margin. Layout examples are in our VAT margin scheme invoice example.
Exports and global accounting
Are exports VAT exempt or zero-rated? Exports of goods outside the EU are exempt under Article 146 of the VAT Directive, which the UK calls zero-rating. That includes margin cars: Germany, for example, states in § 25a(5) UStG that the general exemptions remain available under the margin scheme, except the intra-community supply exemption. An exported margin car therefore carries no VAT on its margin, provided you hold the customs exit evidence.
How to keep margin VAT under control
The practical answer to "global or item-by-item" for a car dealer is: item-by-item, with good data. Know the VAT status of every car before you buy it, record the purchase price correctly and calculate the margin VAT at the moment you set the selling price.
MyCarDealer calculates the net margin on each car after VAT under the margin scheme at your country's rate, plus transport and other costs, before you buy; you can test it on one car with the free valuation. The basic rules are summarised in our VAT margin scheme for used cars guide.
Frequently asked questions
What is the global margin scheme?
It is a simplified margin scheme, allowed by Article 318 of the VAT Directive, in which VAT is calculated on total sales minus total purchases of eligible goods per VAT period instead of item by item. Each member state decides whether to offer it and for which goods.
Can car dealers use global accounting for VAT?
Generally not for cars. The UK excludes motor vehicles from global accounting, and Germany limits its total-margin method to items bought for no more than €750. Car dealers use the item-by-item margin scheme.
What is the difference between global accounting and the item-by-item margin scheme?
Item-by-item compares the selling and purchase price of each car; global accounting compares all sales with all purchases in a period. Under global accounting purchases reduce the margin when made and losses offset gains; under item-by-item they do not.
What records are needed for margin-scheme cars?
A stock book entry per car with VIN and purchase price, the purchase invoice or contract, proof that the car was eligible, the sales invoice with the margin mention and the margin calculation. Keep payment records for both sides.
Are exports VAT exempt or zero rated?
Exports of goods outside the EU are exempt from VAT under Article 146 of the VAT Directive, called zero-rating in the UK. Margin cars can also be exported VAT-free if you hold the customs exit evidence.