VAT - Trade-Ins

Moveable goods excluding motor vehicles

There appears to be some confusion among dealers and practitioners on the subject of trade-ins. From a VAT perspective the concept of a Trade-In has been abolished since 1 July 1995 following the implementation of the Seventh VAT Directive on the taxation of second-hand goods. Prior to that date the supply of a new good and the acquisition of the trade-in was treated as a single transaction and the dealer was liable to tax on the balance paid by the customer.

Under the post 1 July 1995 arrangements there are two distinct transactions:

• The supply by the dealer of the new item giving rise to a VAT liability on the full value
• The purchase and subsequent supply by the dealer of the second-hand item.

The VAT treatment of the purchase and supply will vary depending on whether the goods are Margin Scheme Goods or not.

Margin Scheme Goods^*

If the purchase is made by the dealer from any of the following:

• A private individual
• A VAT exempt trader
• A taxable trader who was not entitled to deduct tax under Section 12 on the acquisition of the goods
• Another dealer selling margin scheme goods

The dealer is not entitled to claim input credit but is only liable to account on his margin when the item is resold.

Non Margin Scheme Goods

If the dealer purchases the item from a VAT registered trader, the latter must issue a VAT invoice and account for the VAT on his periodic VAT return. The purchasing dealer can claim VAT input credit in the normal manner based on possession of a valid VAT invoice. He is of course liable to VAT on the full value of the second-hand good when he resells same.

Paragraph 5.5 of the 1994 Guide to Value Added Tax is no longer valid and should be disregarded.