EU VAT for second-hand goods

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Hi,

I'm selling second-hand goods in the EU (mostly France). As such I must apply a splecial scheme for taxing the profit margin only, where the VAT is computed on the difference between the selling price (for the customer) and my purchase price.

For instance, if I purchase a product for 20€ and sell it for 50€, the profit margin is 30€, so with a 20% VAT rate, the VAT amount would be 5€ (and not 8.33€ as it would be with the "normal" VAT calculation).

Is there any way to support this on Shopify?

For now I have set all the tax rates to 0%. This way no tax amount is shown during checkout (which would be wrong anyway). But I'd love to be able to have real tax computations on Shopify, and hence charge the correct VAT amount in other countries.

Thanks!

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Community Moderator
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This is an accepted solution.

Hi Thomas,

Nick here from Shopify.

 

Really good question for a unique situation. After doing some digging, adding a tax override or exemption would be the best bet for you here. You can specify unique tax rates for a collection of products. We have a helpful guide (Section called - Override the taxes on a collection or on shipping charges ) which goes through this in more detail and the steps to apply it. When doing this, do be sure to go through all of your tax settings also, for example, making sure the All taxes are included in my prices box is not ticked or it would not accurately represent what you are looking to achieve here.

 

Hope this helps,

 

Kind Regards, Nick

Nick | Community Moderator @ Shopify
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Anonymous
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Hi @Nick 

I'm sorry to bring this topic back, but I came across your answer when searching for a solution to the same problem as the original post.

 

When selling second-hand goods in Europe, the tax is calculated based on the difference between the the original purchase price and the reselling price.

 

For example:

 

I bought a vintage chair for €100

I'm selling it for €150

The tax (VAT) will be 20% from the €50 profit margin.

Tax = 10€

Total selling price = €160

 

The overriding tax feature you shared doesn't really solve the problem, because it still calculates the tax based on the full price.

 

How can I make Shopify calculate the tax based off the price difference?

 

Thank you!

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Shopify Staff
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Hmmm @Anonymous , "When selling second-hand goods in Europe, the tax is calculated based on the difference between the the original purchase price and the reselling price."

 

Do you have a link to where this is confirmed? This implies that the VAT is dependent on a contingency between what you bought the item for, and what you want to resell it, which implies that the person who sold it to you would also have to issue a VAT invoice to you in order for you to be able to officially declare this VAT difference. My understanding is that VAT is calculated (and has to be declared to your local tax office or revenue commissioners) based solely on the price you set the product at. Example: if you sell the product at a gross price of €150 then this already includes the VAT of 20% in the price, independent of what you purchased it for. Nobody can actually prove what you paid for the product, you see.

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Tourist
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@Gabe Here are some links clarifying the VAT margin Scheme

 

https://www.gov.uk/vat-margin-schemes

https://ec.europa.eu/taxation_customs/business/vat/eu-vat-rules-topic/special-schemes_en

https://www.hamiltonrose.tax/news/what-is-the-vat-margin-scheme

https://debitoor.com/dictionary/margin-scheme

 

"This implies that the VAT is dependent on a contingency between what you bought the item for, and what you want to resell it, which implies that the person who sold it to you would also have to issue a VAT invoice to you in order for you to be able to officially declare this VAT difference." 

 

This is correct! The seller needs to document have the buying and selling price documented and reported to the tax office.

 

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Shopify Staff
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Ok great, thanks for the context!

 

Gabe

Gabe | Social Care @ Shopify

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Tourist
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hi Gabe,

do you have any more feedback for us on the VAT Margin Scheme and how we can implement this? i too have a requirement for this feature

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Hey @Paul-UK 

Just did some more digging on this and what Nick says above still applies unfortunately (see below). Currently, there is no way natively on the platform to have this type of tax setup despite this having been sent up to our developers on numerous occasions. The developer feedback is twofold and I hope you can understand why (I don't want to undermine the importance and necessity of this feature though):

  1. There is a total demand of this feature from a very minute number of all current merchants.
  2. Adding this feature would require a "deep change" within the current tax settings in the backend as there are too many moving parts involved.

We currently only have the tax overrides and exemptions as mentioned below. It seems like that in most of the cases these taxes are not passed on to the consumers and it’s just a bookkeeping thing that happens on the sellers side. This is because VAT is not charged on the sale price to the non-VAT registered buyer. So perhaps it's a case of just summing everything up in an Excel spreadsheet that you hand over together with any receipts to your tax man at EOY? Not sure either if one of our Tax Apps can help in this scenario or indeed a profit margin app.

Taxes can also be set up in Shopify based on location. You can find more information on how to set up taxes in this document here. This is a great starting document for setting up taxes on the Shopify platform. Now I am also conscious that the information above may not be exactly what you are looking for as your tax rates are product specific (every products margin will be different) as well as location specific.

The first thing that I would recommend that you try is putting all your product prices as exclusive of tax. When you do this tax will be added towards the end of the checkout process and final price will be adjusted depending on how you have country tax settings applied in the taxes section of your admin. So as an example, you could put a note where the customer can clearly see that prices exclude tax. Here is an example product. You then go to Admin -> Settings -> Taxes -> Adjust tax settings like in this picture.

When a UK customer then selects an item, they can see that it is liable for tax, which is then applied when they enter their shipping address before purchase. This might be x% of the whole product price, enough to bear the marginal %. You can set tax rates for customers outside of the UK to 0% if you feel they are not liable.

I realise this is a bit of a work around and might not be ideal, but it is a starting point. As every product margin will be different you may need to settle on an average tax percentage to apply to UK customers. However, I realise fully that this is really an important feature as currently the way Shopify shows invoices/receipts is not 100% in line with UK government guidelines for companies operating under the margin scheme.

---

From Nick above:

You can specify unique tax rates for a collection of products. We have a helpful guide (Section called - 
Override the taxes on a collection or on shipping charges ) which goes through this in more detail and the steps to apply it. When doing this, do be sure to go through all of your tax settings also, for example, making sure the All taxes are included in my prices box is not ticked or it would not accurately represent what you are looking to achieve here.

---

 

 

Gabe | Social Care @ Shopify

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