Mail order sale in the margin VAT system
Taxpayers involved in the sale of second-hand goods settle the tax on the basis of the VAT system - margin. This system works to avoid double taxation of goods. A common problem with the delivery of second-hand goods is mail order settlement. What are the rules for making such transactions?
VAT system - margin
Pursuant to Art. 120 paragraph 4 of the Value Added Tax Act, in the case of a taxpayer performing activities consisting in the supply of second-hand goods, works of art, collectors' items or antiques previously acquired by that taxpayer for the purposes of their business or imported for resale, the tax base is the margin. The margin is the difference between the total amount to be paid by the buyer of the goods and the purchase amount paid by the taxpayer, less the amount of tax.
Such a settlement system is called VAT - margin. This system is more advantageous for taxpayers dealing with trade in second-hand goods, as it allows for actual taxation of the value added by the entity, i.e. the margin imposed by it. This solution prevents double taxation of the supply of goods. In particular, it is about avoiding the taxation of the tax previously included in the price of goods purchased by the taxpayer, which are used for resale.
Based on Article. 120 paragraph 10 of the VAT Act, the application of the VAT-margin system is possible if the taxpayer has purchased goods from:
- a natural person, legal person or organizational unit without legal personality, not being a taxpayer, or not being a taxpayer of value added tax,
- taxpayers who are subjectively exempt from VAT,
- VAT payers, provided that the supply of these goods was subject to surcharge tax,
- VAT taxpayers, in a situation where the goods are subject to VAT exemption,
- value added tax payers, if the supply of these goods was subject to value added tax, and the buyer has documents clearly confirming the purchase of goods on these principles, i.e. from taxpayers also settling in the VAT-margin system.
The above provision means that only taxpayers who have previously purchased goods from a person not paying the tax, a taxpayer exempt from tax or from a taxpayer who applied the objective exemption or the procedure for imposing the surcharge tax during the distribution process can apply the tax settlement in the VAT system. This means that the taxpayer purchasing and selling the goods later could not deduct VAT at earlier stages.
Taxpayers entitled to settle in the VAT-margin system are not required to specify the applied margin on the VAT invoice. They should only enter the total cost of the payment in the invoice.
The taxpayer has the right to choose the method of taxation. He has the option of taxing the supply of goods on general terms at any time. Pursuant to Art. 120 paragraph 14 of the Act, a taxpayer may apply general principles of taxation to supplies of second-hand goods.If the general rules are applied, the taxpayer has the right to deduct the amount of input tax on second-hand goods in the settlement for the period in which the taxpayer's tax obligation arose for the supply of goods.
In a situation where a taxpayer, when selling second-hand goods, applies different taxation rules (VAT - margin or general rules), he must remember to keep special sales records. Pursuant to Art. 120 paragraph 15 of the VAT Act, the records should include the division of supplies depending on the method of taxation. The records must also include the purchase amounts of goods necessary to determine the margin amount. This is the only way to determine the appropriate taxable amount and to calculate and pay the relevant output tax.
Mail order sale is governed by different laws than ordinary sale, e.g. in wholesalers. In this type of sale, the moment of the tax obligation arises when the money is received and not, as in normal sales, on the date of invoice.
In the case of distance selling, the tax obligation may arise at two different points:
1. On the day of receipt of payment, that is, on the day the money is received by the taxpayer. This is the case when the goods are shipped COD by courier or by postman. The buyer picks up the goods and makes the payment at the same time, then the money is transferred to the taxpayer. In this situation, if a sales invoice is issued and forwarded with the goods, it does not give rise to a tax obligation. If the sale does not take place, e.g. due to the return of the goods to the buyer, the issued invoice should be canceled. The obligation would arise if the entrepreneur received the actual payment.
2. On the day of collection of the payment prior to the release of the goods. This is the case of prepayment to the taxpayer's account. In such a situation, the tax obligation arises earlier, along with the inflow of money to the seller. If the customer changes his decision and has the right to return the goods (usually 14 days), the return will require the preparation of appropriate corrective documents.
Taxpayers selling goods to other active taxpayers issue an appropriate VAT invoice - MARGIN. The same rules apply as in the case of other sales transactions (except for the method of calculating the tax). The rules are slightly different when selling to natural persons who do not run a business and to flat-rate farmers. Ordinary sales transactions made to the above entities should be registered with a cash register. However, there is no such obligation in the case of mail order sale.
Pursuant to Art. 2 clause 1 of the Regulation of the Minister of Finance on exemptions from the obligation to keep records using cash registers, until December 31, 2014, mail order delivery of goods was released from the obligation to register with a cash register. The condition for the exemption is payment for the activity performed in full via the post office, bank or cooperative savings and credit union (respectively to the taxpayer's bank account or to the taxpayer's account at the cooperative savings and credit union of which he is a member). The records and evidence documenting the payment should also clearly indicate which specific activity the delivery was related to and on whose behalf (buyer data, including its address).
Thus, in the case of mail order sales to natural persons who do not conduct business activity and also to flat-rate farmers, it is not necessary to register with a cash register. However, you should remember about certain exclusions. The exemption from the obligation to register by means of a cash register does not apply in the case of:
-delivery of goods:
- liquid gas,
- engine parts (PKWiU 28.11.4),
- internal combustion engines of a kind used for propulsion of vehicles (PKWiU 29.10.1),
- bodywork for motor vehicles (PKWiU 29.20.1),
- trailers and semi-trailers; containers (PKWiU 29.20.2),
- parts of trailers, semi-trailers and other vehicles without mechanical drive (PKWiU 126.96.36.199),
- parts and accessories for motor vehicles (excluding motorcycles) not elsewhere classified (PKWiU 188.8.131.52),
- internal combustion piston engines of a kind used in motorcycles (PKWiU 30.91.3),
- radio, television and telecommunications equipment, excluding electron tubes and other electronic components as well as parts for apparatus and devices for sound and image manipulation, antennas (PKWiU ex 26 and ex 27.90),
- photographic equipment, excluding parts and accessories for photographic equipment and accessories (PKWiU ex 26.70.1),
- goods made of precious metals or with the participation of these metals, the supply of which cannot benefit from the exemption from tax referred to in Art. 113 paragraph. 1 and 9 of the Act of March 11, 2004 on tax on goods and services, hereinafter referred to as the "Act",
- CDs, DVDs, audio cassettes, magnetic tapes (including video cassettes), floppy disks, memory cards, cartridges and other analog or digital data carriers containing recorded data or stored computer software packages, including those sold with a license to use,
- products intended for use, offered for sale or used as motor fuels or as additives or admixtures to motor fuels, regardless of the PKWiU symbol,
- tobacco products (PKWiU 12.00), alcoholic beverages with an alcohol content above 1.2% and alcoholic beverages containing a mixture of beer and non-alcoholic beverages with an alcohol content exceeding 0.5%, regardless of the PKWiU symbol, with the exception of goods delivered in the manner specified in item 42 of the Annex to the Regulation;
-provision of services:
- passenger transport in road communication, with the exception of transport mentioned in item 15 and 16 of the Annex to the Regulation,
- transport of people and their hand luggage by taxis.
To sum up, mail order sales in the VAT system - margin for active taxpayers should be documented with a VAT invoice - MARGIN. Such an obligation usually results from the recipient's initiative to be able to include a given expense as tax deductible costs. In such a case, the taxpayer pays the tax solely on the value added (margin) and its value is not shown on the invoice. In the case of sales to non-business natural persons and to flat-rate farmers, there is no obligation to register the sale with a cash register (with some exceptions). However, if the taxpayer has a cash register, he may issue a receipt, which for his client will be the basis for any returns or complaints.