There is no VAT exemption for the sale of scrap. However, it is common for self-billing to be used in the scrap industry, meaning the buyer will issue your client with the invoice once they’ve valued the scrap’s worth.
It is also often the case that the sale of scrap is eligible for sale under the Global Accounting scheme, which is a simplified variation of the Margin Scheme. When goods are sold under the margin scheme or global accounting, no VAT is shown on invoices. While you cannot sell motor vehicles (including sleighs with motors!) on the global accounting Scheme, you can sell off parts as scrap, as long as the value of any individual part is not more than £500 and the vehicle or sleigh would be eligible for sale under the margin scheme if sold complete.
Santa should alert the dealer that he is VAT registered so that the dealer can include his VAT number on the invoice – but more importantly Santa needs to inform them that because he acquired the original sleigh without any VAT, he is eligible to sell the parts under the Global Accounting Scheme. This is so they can include the statement ‘global accounting invoice’ on the invoice.
Under global accounting, rather than accounting for VAT on the margin between the purchase price and selling price of a specific item, you instead pay VAT on the margin achieved between your total eligible purchases and total eligible sales within an accounting period.
When starting on global accounting, because Santa may have purchased some sleighs in a previous accounting period, he is allowed to bring the value of stock on hand forward to this accounting period, otherwise there may be no eligible purchases made in this period, and the margin would effectively be 100%.
It is likely that in his first global accounting period, Santa may have a negative margin, meaning he doesn’t account for any VAT to Elf Revenue and Customs.
However, he must carry that negative margin through to the next VAT period. An example of the calculation and further guidance on the Global Accounting Scheme can be found in VAT Notice 718 Sections 14 and 15.
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