Key facts
- VAT is calculated on the profit margin (selling price minus purchase price).
- You cannot show VAT separately on invoices under the Margin Scheme.
- Applies to second-hand goods, art, antiques, and collectors’ items.
- Your customer cannot reclaim input VAT on margin scheme purchases.
How the VAT Margin Scheme Reduces Tax on Second-Hand Goods
Normally, VAT is charged on the full selling price. Under the Margin Scheme, VAT is charged only on the difference between what you paid for an item and what you sell it for:[1]
Margin = Selling price − Purchase price
VAT due = Margin × 1/6 (to extract VAT from the VAT-inclusive margin)
Worked Example
You buy a second-hand car for £3,000 and sell it for £4,500.
- Margin: £4,500 − £3,000 = £1,500
- VAT: £1,500 × 1/6 = £250
Without the scheme, VAT would be £4,500 × 1/6 = £750.
What Goods Qualify?
You can use the Margin Scheme for:[2]
- Second-hand goods — items previously owned and sold in their current condition
- Works of art — paintings, sculptures, tapestries
- Antiques — items over 100 years old
- Collectors’ items — stamps, coins, natural history specimens
The goods must have been purchased from someone who didn’t charge you VAT (e.g. a private individual, another margin scheme seller, or an unregistered business).
Record-Keeping
You must maintain a stock book for margin scheme items, recording:[2]
- Stock number and description
- Purchase date and price
- Seller’s name and address
- Sale date and price
Records must be kept for 6 years.
No VAT on Invoices
You cannot show VAT separately on invoices for margin scheme sales. Your customer cannot reclaim any VAT — which is why the scheme is used for sales to end consumers, not B2B sales.
Global Accounting
For items sold individually for £500 or less, you can use global accounting: calculate the margin on total purchases and total sales for the period, rather than item by item.[2]
Frequently Asked Questions
What is the VAT Margin Scheme?
The VAT Margin Scheme lets you pay VAT only on your profit margin (selling price minus purchase price) rather than on the full selling price, when dealing in second-hand goods, art, antiques, or collectors’ items.
How do you calculate VAT under the Margin Scheme?
Subtract the purchase price from the selling price to get the margin, then calculate VAT as one-sixth of that margin. For example, a £1,500 margin results in £250 VAT.
Can I show VAT on invoices under the Margin Scheme?
No. You cannot show VAT separately on margin scheme invoices. This means your customer cannot reclaim any VAT on the purchase, making the scheme best suited for sales to end consumers.
What records must I keep for the Margin Scheme?
You must maintain a stock book recording each item’s stock number, description, purchase date and price, seller’s name and address, and sale date and price. Records must be kept for 6 years.
Further Reading
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Sources
- VAT Margin Scheme — GOV.UK
- Margin schemes for second-hand goods (VAT Notice 718) — GOV.UK
- VAT guide (VAT Notice 700) — GOV.UK