Need help with the VAT margin scheme?
The VAT margin scheme lets businesses pay VAT only on the profit margin, not the full sale price. This means you’re taxed on the difference between what you paid and what you sold an item for, usually at 16.67% (one-sixth).
If you trade in second-hand goods, art, or antiques, this can make a real difference to your cash flow and competitiveness. Sleek’s accounting services can help you set up and manage VAT margin schemes correctly, ensuring you stay compliant and make the most of available savings.
In this guide, you’ll learn what the VAT margin scheme is, who qualifies, how to calculate VAT on your margin, and how to keep accurate records for HMRC.
Need help with the VAT margin scheme? Sleek’s experts can get you sorted.
What is the VAT margin scheme?
The VAT margin scheme is a way for VAT-registered businesses to pay VAT only on the profit margin of certain goods, rather than on the total selling price. The VAT is charged at one-sixth of the margin (equivalent to 16.67%).
For example, if you buy an antique chair for £200 and sell it for £260, you pay VAT on the £60 profit margin, not on £260. Your VAT liability would therefore be £10 (£60 ÷ 6).
The scheme is explained in detail in the official VAT margin schemes guidance from GOV.UK. It’s particularly useful for businesses dealing in second-hand goods, works of art, antiques, or collectors’ items, as it helps reduce the overall VAT burden and keeps prices competitive.
Keep copies of every purchase and sales invoice for margin-scheme goods, even if no VAT is shown. HMRC can request them at any time to confirm you’ve applied the scheme correctly.
Who can use the VAT margin scheme?
Only VAT-registered businesses can use the VAT margin scheme. You don’t need to apply separately, but you must meet the eligibility rules and keep detailed records for HMRC.
To qualify, your business must:
- Be VAT registered, either voluntarily or because you’ve passed the threshold.
- Buy and sell eligible goods, such as second-hand items, works of art, antiques, or collectors’ pieces.
- Avoid reclaiming VAT on the purchase of those goods.
If you buy stock from a private seller or another business using the margin scheme, those purchases may qualify. However, if VAT was charged when you bought the item, you can’t use this scheme on the resale.
Learn how registration ties into this process in register for VAT.
What’s eligible under the VAT Margin Scheme?
Not every item can be sold under the VAT margin scheme. HMRC restricts eligibility to specific types of goods that have already been taxed once in their lifetime.
Eligible items | Ineligible items |
Second-hand goods bought without VAT | Goods purchased with VAT shown on the invoice |
Works of art, antiques, and collectors’ items | Precious metals, investment gold, and gemstones |
Used vehicles that meet margin scheme criteria | New or imported vehicles |
Specific agricultural or machinery items acquired after January 2010 | Goods bought for resale where VAT was reclaimed |
Eligible goods must be used or resold and not newly manufactured. If in doubt, check the original purchase invoice; if VAT was charged, you must use standard VAT accounting instead.
You can learn more about input VAT rules and what counts as a recoverable expense in our guide on ltd company expenses.
How to calculate VAT on the margin
Calculating VAT under the margin scheme is simple once you understand what counts towards the margin. You pay VAT only on the difference between what you paid and what you sold the item for, excluding any repair, refurbishment, or overhead costs. These expenses don’t form part of the margin.
The formula is:
VAT on Margin = (Selling Price − Purchase Price) ÷ 6
For example, if you buy a painting for £1,000 and sell it for £1,400, the margin is £400. You’ll pay £66.67 (£400 ÷ 6) in VAT.
Businesses dealing in many small transactions can simplify the process using accounting software to automate these calculations and maintain accurate VAT records.
Record-keeping and invoices under the VAT margin scheme
Accurate records are essential when using the VAT margin scheme. HMRC requires you to keep a stock book showing each item bought and sold under the scheme, along with the purchase and selling prices.
Invoices issued under the scheme must clearly state that the VAT margin scheme has been applied and must not show VAT separately. This prevents buyers from trying to reclaim VAT that hasn’t been charged.
Keep all relevant documents, such as purchase invoices, sales invoices, and proof of payment, for at least six years. These records should be stored securely and be easy to match against your VAT Returns.
To help automate invoicing and ensure accuracy, read our article on how to create an invoice.
Global Accounting Scheme under the VAT margin scheme
The Global Accounting Scheme is a simplified version of the VAT margin scheme, designed for businesses that sell a large volume of low-value items. Instead of calculating VAT on each sale, you calculate it on the total margin for the VAT period.
To work out the VAT due, subtract the total purchase price of eligible goods from the total selling price, then divide the difference by six. If your purchases exceed your sales, no VAT is due for that period, and the negative margin can be carried forward.
This approach is popular among shops and traders dealing in bulk second-hand goods such as books, clothing, or records. It reduces admin and speeds up VAT reporting, but you must still keep detailed purchase and sales records to support each VAT return.
Second-hand cars: special rules under the VAT margin scheme
The VAT margin scheme for second-hand cars applies only in specific situations. To use it correctly, check the following key points:
Eligible vehicles:
- Must be previously used and suitable for further use
- Bought without VAT being charged on the purchase invoice
- Acquired within the UK from a private seller or another margin scheme trader
Not eligible:
- New or imported vehicles
- Vehicles sold under standard VAT rules
- Category A or B write-offs
When calculating the margin:
- Include any payments for accessories or upgrades fitted before sale
- Add any agent’s commission or service charges to the selling price
- Exclude costs for repairs or maintenance when calculating the VAT margin
These conditions ensure the correct VAT is paid while maintaining compliance with HMRC rules. For more insight into claiming legitimate business costs, see tax-efficient ways to withdraw money.
VAT margin scheme and cross-border sales
The VAT margin scheme mainly applies to domestic sales within the UK, but there are special rules for cross-border transactions. You can’t use the margin scheme for goods sold under the One Stop Shop (OSS) system or for intra-EU sales between VAT-registered businesses.
If you sell eligible items to private buyers in another country, you’ll need to follow that country’s VAT rules and may need to register there. Imported goods also require careful handling, since import VAT can’t be reclaimed if you intend to sell the items under the margin scheme.
When dealing with overseas sales:
- Convert any foreign currency prices into sterling using the current exchange rate.
- Keep import and export paperwork with your VAT records for at least six years.
- Apply the scheme only to goods that remain eligible once imported.
Stay compliant with Sleek and the VAT margin scheme
The VAT margin scheme offers an effective way to reduce your VAT bill and boost profitability if your business trades in second-hand goods, art, antiques, or collectors’ items. By taxing only the margin, you can stay competitive and improve cash flow without increasing prices.
Keeping accurate records, issuing the right invoices, and understanding which goods qualify are key to using the scheme correctly. That’s where Sleek can help. Our accounting experts make VAT compliance simple, from registration to reporting.
Ready to make VAT simpler and more profitable? Partner with Sleek’s accounting experts today.
FAQs on the VAT margin scheme
What is a VAT margin scheme?
A VAT margin scheme lets VAT-registered businesses pay VAT only on the difference between what they paid for an item and what they sold it for. VAT is charged at one-sixth (16.67%) of that margin.
How does the VAT margin scheme work?
When you buy an eligible second-hand item without paying VAT, you can resell it under the margin scheme. You calculate VAT on the profit margin, not the total sale price, and report it on your VAT Return.
Why is the VAT margin scheme 16.67% and not 20%?
The 16.67% rate represents one-sixth of the profit margin. This fraction aligns with the standard 20% VAT rate but applies only to the margin, not the full sale amount.
How do I calculate VAT on the margin scheme?
Subtract the purchase price from the selling price and divide the result by six. For example, if you buy for £1,000 and sell for £1,400, you owe £66.67 in VAT.
What is the second-hand VAT margin scheme?
It’s a version of the margin scheme for businesses selling used or pre-owned items like furniture, antiques, or vehicles. It helps reduce VAT costs on goods that have already been taxed once.
How do I register or apply for the VAT margin scheme?
You don’t need a separate registration. As long as you’re VAT-registered and meet eligibility rules, you can apply the scheme by keeping proper records and indicating it on your VAT Return.
Can buyers reclaim VAT on margin scheme sales?
No. Since VAT isn’t shown separately on invoices under this scheme, buyers can’t reclaim it. The VAT is built into the selling price.
Disclaimer: The preceding information is not legal advice. This content is aimed to provide general guidance. For more formal or legal advice, contact Sleek directly.
