The VAT Margin Scheme lets some businesses pay VAT only on the difference between what they paid for an item and what they sold it for. That difference is the margin. It mainly helps businesses that sell second hand goods.
What the scheme covers
You can use the Margin Scheme for:
- Second hand goods
- Works of art
- Antiques
- Collectors’ items
It is common among car dealers, antique shops and resellers who buy items from people who were not able to charge VAT.
How the maths works
Instead of charging VAT on the full selling price, you charge VAT on the margin. At the standard rate, the VAT is one sixth of the margin.
Example You buy a used item for £1,000. You sell it for £1,600. Your margin is £600. The VAT is £600 divided by 6, which is £100.
If you sell an item for the same price you paid, or for less, there is no margin, so there is no VAT to pay.
[ Infographic: How the Margin Scheme works ]
Brief: show purchase price and selling price, with VAT charged only on the gap between them.
Alt text: The VAT Margin Scheme charges VAT only on the margin between the purchase price and the sale price.
Caption: VAT applies to the margin, not the full price.
Records you must keep
The scheme has strict record rules. For each item you must keep a stock book that shows the purchase price, the selling price, the margin and the VAT. You also need the purchase and sales invoices. Without these records you cannot use the scheme for that item.
When you cannot use it
You cannot use the Margin Scheme for an item if you were charged VAT when you bought it, because you would normally reclaim that VAT instead. New goods do not qualify either.
Frequently asked questions
What is the VAT Margin Scheme? A scheme that charges VAT on the margin between what you paid for an item and what you sold it for, rather than on the full price.
What can I sell under the Margin Scheme? Second hand goods, works of art, antiques and collectors’ items.
How is the VAT worked out? At the standard rate, the VAT is one sixth of the margin. For a £600 margin, the VAT is £100.
What if I sell an item at a loss? There is no margin, so there is no VAT to pay on that sale.
What records do I need? A stock book with the purchase price, selling price, margin and VAT for each item, plus the purchase and sales invoices.