EU VAT for second-hand goods

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Thomas_J_
New Member
3 0 1

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!

Accepted Solution (1)

Accepted Solutions
Nick
Community Moderator
Community Moderator
4514 433 981

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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Replies 17 (17)
Nick
Community Moderator
Community Moderator
4514 433 981

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
Not applicable

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!

Gabe
Shopify Staff
Shopify Staff
7522 1202 1955

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.

Gabe | Social Care @ Shopify
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GusD
Tourist
14 0 3

@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.

 

Gabe
Shopify Staff
Shopify Staff
7522 1202 1955

Ok great, thanks for the context!

 

Gabe

Gabe | Social Care @ Shopify
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Paul-UK
Tourist
3 0 1

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

Gabe
Shopify Staff
Shopify Staff
7522 1202 1955

Hey @Paul-UK 

Just did some more digging on this and what Nick says above still applies unfortunately (see above). 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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EliteHNW
Tourist
5 0 1

Hi @Gabe 

Just bringing this back up again, has there been any movement on the development of this?

Such a vital feature for small businesses based in the UK or EU - and a massive shame it is not available. 

Appreciate that I am not a coder and don't understand the intricacies of developing this, but seeing as Shopify already knows the 'Sale Price of the Item' (X) and the 'Purchase Price of the Item' (Y) is there no way to add to the UK tax settings 'Margin Scheme' where the simple calculation of (X-Y)*16.67% is applied to the product to calculate the tax? 

Apologies if this is a massive over-simplification, 

EliteHNW

Gabe
Shopify Staff
Shopify Staff
7522 1202 1955

Hey @EliteHNW 

Good News: it's currently in our features request backlog. How long that may take, I cannot say.

Best,

Gabe | Social Care @ Shopify
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EliteHNW
Tourist
5 0 1

Hi @Gabe 

Is there any way to get a rough date of availability? 

We are looking at getting this custom coded for us in an app but the pricing is coming in around $4,000 - before we proceed with that (which we really don't want to!) it would be nice to know if it is only 6 months away and we have to make do until then

Thanks

Elite HNW

Gabe
Shopify Staff
Shopify Staff
7522 1202 1955

@EliteHNW 

Ok, unfortunately the status of the backlog feature request is currently @ "new" which can indicate a timeline up to 6 months.

Have any of the other workarounds not been able to help like create dedicated collections and put all products that cost the same and have the same profit margin in one collection, and set up a tax override which would equal taxing only the profit? You then use an app to add this tax line onto an invoice to the customer.

Gabe | Social Care @ Shopify
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EliteHNW
Tourist
5 0 1

Hi @Gabe 

Unfortunately, none of our products are the same price (high-end watches, fine jewellery and art) so the purchase and sale prices are vastly different - this would require manual tax overrides for potentially 1000's of products.

This is an issue most 2nd hand shops must face, as we never buy 2 items at the same price, and the sale price can be different due to condition - even if we have 2 'identical items' wear and tear massively change the purchase and sale price.

Furthermore, we are undergoing FCA regulation so the tax would have to be reported correctly, not a 'workaround' which is obviously making this slightly harder for us 

Just out of curiosity, how come this is stated as a 'new' request when the original forum started in 2018?

Is there a way to expedite this development? I would rather pay Shopify to develop this faster, than a 3rd party so more Shopify users get this functionality 

Thanks, 

Elite HNW

Gabe
Shopify Staff
Shopify Staff
7522 1202 1955

@EliteHNW 

Yes it's quite late but I'm unsure if there are parallel and much older feature requests for this particular function as it has been flagged for a number of years now, you are right. The above mentioned one was one I was able to identify in our massive feature-request backlog-library in Github.

In the interim period I would highly recommend a tax or general programming expert. An email to one of our partner agencies or experts wouldn't cost anything and they can draw up an implementation project and cost plan with you. There are some on Fiverr that cost very little and here are our own partner agencies that specialise in sales tax.

Gabe | Social Care @ Shopify
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EliteHNW
Tourist
5 0 1

Hi @Gabe 

We have put a message out (no responses as of yet, it has been out for a while) - however, this still won't solve the problem of the VAT receipt and reporting issue - putting incorrect VAT %'s and amounts is not permissible for FCA registered businesses 

Unless we had the ability to edit the Shopify Tax Engine for our site, almost like our own 'tax environment' where we were responsible for all VAT calculations then we could rectify this issue 

Otherwise, we are a bit of a dead-end - we can't charge VAT to our customers correctly, which can violate the FCA rules, meaning we can't operate properly. And the development for this feature may never happen (based on 3 years since this was first raised) 

Any other solutions would be appreciated! 

Elite HNW

Gabe
Shopify Staff
Shopify Staff
7522 1202 1955

@EliteHNW 

You say "Unless we had the ability to edit the Shopify Tax Engine for our site, almost like our own 'tax environment' where we were responsible for all VAT calculations then we could rectify this issue".

I'm wondering if an external accounting app/integration like Quickbooks or similar apps could manage the yearly tax declarations for you so that your tax accountant is happy?

Gabe | Social Care @ Shopify
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EliteHNW
Tourist
5 0 1

HI @Gabe 

In terms of reporting the correct VAT to HRMC, this is being done via Xero - it is a long-winded manual process due to the fact we have to recalculate VAT for every item to report it correctly - this is exceptionally frustrating but at the end of the day not the end of the world 

The problem lies on the customer end, they receive a receipt for example - using the UK's govs example here: 

"You buy a work of art for £1,500 and sell it for £2,000. Using a margin scheme, you pay VAT at 16.67% (one-sixth) on the difference: £500. This means you’ll pay £83.33"

The customer's receipt should state that the VAT was £83.33 - however because Shopify doesn't have the current capability to calculate the margin scheme it shows the VAT to be £333.33 

This starts to cause an issue when as a business we are regulated by the Financial Conduct Authority - we cannot be misrepresenting the VAT to our customers 

This is one of those stuck between a rock and hard place scenario - there is no solution currently that is viable - which is tough!

Any other suggestions would be appreciated - Elite HNW

 

Gabe
Shopify Staff
Shopify Staff
7522 1202 1955

Gotcha! The invoice template VAT tax line needs to have some sort of formula to output the following:

  • (Selling price minus purchase price) * 16.67%

Just throwing out some ideas here on this Friday evening (but no doubt you have thought of all these already):

Retrieve an inventory item's cost (purchase price/cost)

To facilitate the product cost feature, there is a new writable cost property to the InventoryItem resource. This property allows apps to set and retrieve an inventory item's cost.

Gabe | Social Care @ Shopify
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