VAT Margin Scheme: How It Works for Second-Hand Goods

What Is the Margin Scheme?

The VAT Margin Scheme is designed for businesses that buy and sell second-hand goods, works of art, antiques, and collectors' items. Instead of charging VAT on the full selling price, you pay VAT only on the difference between what you paid for an item and what you sold it for — your profit margin.

This prevents double taxation. When you buy a second-hand item from a private individual (who can't charge VAT), the item has already had VAT paid on its original sale. Charging full VAT on the resale would effectively tax it twice.

How It Works

Standard VAT: You sell a second-hand laptop for £600. VAT at 20% = £120, meaning either the customer pays £720 or you absorb the VAT.

Margin Scheme: You bought the laptop for £400 and sell it for £600. Your margin is £200. VAT is calculated on the margin: £200 / 6 = £33.33 (because the margin is treated as VAT-inclusive).

The difference is significant: £33.33 under the margin scheme versus £120 under standard VAT.

Who Can Use It?

The margin scheme is available for VAT-registered businesses that buy eligible goods for resale from:

• Private individuals (not VAT-registered)
• Other businesses that used the margin scheme when they sold to you
• Businesses where the goods were exempt from VAT

You cannot use the margin scheme for goods purchased from VAT-registered businesses where VAT was charged on the sale. In that case, you reclaim the input VAT and charge output VAT on the full selling price under standard rules.

Eligible Goods

• Second-hand goods (furniture, electronics, vehicles, clothing, books)
• Works of art
• Antiques (over 100 years old)
• Collectors' items (stamps, coins, etc.)

Record-Keeping Requirements

The margin scheme requires specific records:

• A stock book recording each purchase and sale
• For each item: purchase date, purchase price, supplier details, sale date, sale price, customer details
• Calculation of the margin and VAT for each item (or using the global accounting method — see below)

Important: You must not show VAT separately on invoices for margin scheme sales. The invoice should state "second-hand goods — margin scheme" or similar.

Global Accounting Method

Instead of calculating the margin on each individual item, you can use global accounting:

• Add up the total purchase price of all eligible goods bought in the period
• Add up the total selling price of all eligible goods sold in the period
• Calculate the margin on the totals
• Pay VAT on the overall margin

This is simpler if you deal in high volumes of low-value items. If the total purchases exceed total sales in a period (negative margin), you carry the excess forward — you can't claim a VAT repayment.

Vehicles

The margin scheme is commonly used for used car dealers. If you buy a car from a private individual for £8,000 and sell it for £10,000, your margin is £2,000, and VAT due is £333.33.

With Accounted, Penny can track your margin scheme purchases and sales, calculating the correct VAT automatically.

Simplify your second-hand goods VAT. Start your free trial with Accounted and let Penny manage your margin scheme records.