If you buy and resell second-hand goods, the normal VAT rules would be punishing. You bought an item from a private seller who never charged you VAT; sell it on for more and you owe 20% VAT on the full selling price, even though the item has already borne VAT once in its lifetime. For a dealer on thin margins, that is a huge bill on profit never really made.
The VAT margin scheme exists to fix exactly that. Instead of VAT on the full selling price, you pay VAT only on your margin — the difference between what you paid and what you sold for. It is one of HMRC's most valuable schemes for dealers, and one of the most misunderstood.
Quick answer: The VAT margin scheme lets VAT-registered dealers of second-hand goods, works of art, antiques and collectors' items pay VAT only on their profit margin, not the full sale price. Keep a stock book, never show VAT on scheme invoices, and report margin VAT in Box 1 and net sale values in Box 6 of your VAT return. The scheme is optional — the records are not.
What is the VAT margin scheme?
The margin scheme is a special accounting method for dealers in used goods. Under normal VAT rules a VAT-registered seller charges 20% VAT on the full selling price and reclaims input tax on purchases — which works for new goods bought from VAT-registered suppliers. But second-hand dealers buy from private individuals, unregistered businesses or other dealers: purchases on which no VAT was charged, so no input VAT exists to reclaim. Taxing the resale in full would tax the same item twice over its lifetime.
The margin scheme (explained in HMRC's VAT Notice 718) taxes only the value you add: your profit margin. Three versions exist — the standard Margin Scheme (most dealers), the simplified Global Accounting Scheme, and the VAT Auctioneers' Scheme. All are optional, and you may mix scheme and normal rules across sales. One-way door: once a sale has been made under normal rules, it cannot be re-done under the scheme.
How the margin calculation works
Your margin is your selling price minus your purchase price, and the VAT due is the VAT fraction of that margin. For goods sold at the standard 20% rate, the VAT fraction is 1/6 (because VAT-inclusive price × 20/120 = price ÷ 6). Use our VAT calculator to check margin-VAT figures quickly.
What counts as purchase price and selling price
HMRC's rules are strict about what goes into each figure:
- Purchase price includes any incidental costs the supplier charged you as part of buying the item — their commission, transport, packaging and insurance. It does not include your own costs after purchase: repairs, refurbishment, restoration and overheads are excluded.
- Selling price is everything the customer pays, including any incidental expenses you charge the buyer — your own commission, delivery or packing charges you add to the bill.
Worked example 1: an antique table
You buy an antique oak table from a private seller for £1,500, plus £50 delivery charged by the seller — total purchase price £1,550 — and sell it for £2,000.
- Margin = £2,000 − £1,550 = £450
- VAT due = £450 × 1/6 = £75.00
Under normal VAT rules you would have owed £2,000 × 1/6 = £333.33 on the same sale. The scheme saves you £258.33.
Worked example 2: a sale at a loss
You buy a used chest of drawers for £800 from an unregistered house-clearance business and sell it for £700. Margin = £700 − £800 = −£100 → VAT due = nil.
When you sell at a loss there is no VAT to pay. Note, however, that under the standard scheme you cannot offset losses against profits: the loss is simply ignored, and it does not reduce the VAT due on your profitable sales. (Global accounting is the exception — see below.)
Who can use it: the eligibility rules
The standard margin scheme covers four categories: second-hand goods (suitable for further use as they are, or after repair), works of art (pictures, paintings, collages and drawings executed entirely by hand — craft and industrial items may not qualify), antiques (over 100 years old), and collectors' items (the legal list is narrower than everyday usage, so check Notice 718 before assuming an item qualifies).
What is excluded
You cannot use the margin scheme for precious metals, investment gold or precious stones. Air guns qualify only if registered under the Firearms Act 1968.
Eligible purchases — the critical test
The goods must have been acquired in circumstances where no VAT was charged on the item to you — in practice, buying from a private individual, an unregistered business, or another dealer who sold it to you under the margin scheme.
Critical trap: if your purchase invoice shows VAT separately, the item is not eligible — even if you never claimed that VAT back. An invoice with separately shown VAT disqualifies the item, full stop.
One narrow exception: imported works of art, antiques and collectors' items acquired from the creator or their heirs can be opted into the scheme under Section 10 — but you must notify HMRC first.
Invoices, stock books and record keeping
Invoicing rules
Invoices for margin-scheme sales must not show VAT separately — a VAT figure would give your customer a charge they cannot reclaim. Carry a statement such as:
- "Margin Scheme – second-hand goods"
- "Margin Scheme – works of art"
- "Margin Scheme – collectors' items and antiques"
The stock book
Keep a stock book (or equivalent records) recording every eligible item: stock number, purchase date, price and seller, sale date, price and buyer, margin and VAT due. Keep everything for 6 years. If HMRC cannot verify your margins from your records, VAT becomes due on the full selling price — the very outcome the scheme was designed to avoid.
Filling in your VAT return
Margin-scheme sales are reported differently. For each accounting period:
- Box 1 (VAT due on sales): enter the output tax calculated on the margins.
- Box 6 (total value of sales, excluding VAT): enter the full selling price of the scheme goods minus the VAT due on the margin.
- Box 7 (total value of purchases, excluding VAT): enter the full purchase price of the scheme goods.
- Boxes 8 and 9: nothing — these are for EU movements only.
Example: in one period you sold scheme goods for £12,000 total, with total margin VAT of £1,200, and bought scheme goods for £9,000:
- Box 1: £1,200
- Box 6: £12,000 − £1,200 = £10,800
- Box 7: £9,000
If you are filing for the first time, our step-by-step guide to how to file a VAT return and our explainer on the VAT return boxes walk through every box in detail.
The Global Accounting Scheme: simplified margin accounting
The Global Accounting Scheme is a simplified variation for dealers in bulk, low-value second-hand goods who cannot realistically keep an item-by-item stock book. Instead of a margin per item, you calculate VAT on the total margin of all eligible sales versus purchases in an accounting period.
Worked example: global accounting
In one accounting period you buy £10,000 of eligible second-hand stock and sell £14,000:
- Total margin = £14,000 − £10,000 = £4,000
- VAT due = £4,000 × 1/6 = £666.67
Losses and profits net off within the period — the one advantage over the standard scheme, where losses cannot be offset. Records must still be complete, up to date and distinguishable, but there is no per-item stock book.
Restrictions on global accounting
It is not available for every type of goods. You cannot use global accounting for aircraft, boats and outboard motors, caravans, horses and ponies, or motor vehicles including motorcycles (except when broken up for scrap). There is also a value cap: any item with a purchase value over £500 must be dealt with under the standard margin scheme instead.
Common mistakes that cost dealers money
1. Accepting an invoice with VAT shown separately
As noted above, if the purchase invoice shows VAT separately, the item cannot go through the scheme — even if you never reclaimed the VAT. Check every supplier invoice before adding stock to the scheme.
2. Adding repair and refurbishment costs to the purchase price
Repairs, restoration and refurbishment are explicitly excluded from the purchase price for margin purposes. Adding them shrinks your margin and underpays VAT — an error HMRC picks up in inspections.
3. Using the scheme for precious metals or investment gold
These are specifically excluded — dealers in gold, silver and gemstones must use the normal VAT rules.
Is the margin scheme right for you?
If you are a VAT-registered dealer buying used goods from private individuals or unregistered businesses, the margin scheme is almost always worth using — it is optional, can be mixed with normal rules across your stock, and taxes your profit rather than the item's whole history.
All figures here use the 2026/27 context: the £90,000 registration threshold and the standard 20% rate (5% reduced, 0% zero-rated). HMRC's VAT Notice 718 remains the definitive reference, and the margin scheme should not be confused with the flat rate scheme — they operate very differently.
FAQs
Can I use the margin scheme if I bought the item from a VAT-registered dealer?
Yes — but only if that dealer sold it to you under the margin scheme. The test is whether VAT was charged to you on the purchase. If their invoice shows VAT separately, the item is ineligible, even if you never claimed the VAT back. If it carries the margin-scheme wording with no separate VAT, it qualifies.
Can I use the margin scheme for items I repair or refurbish?
Second-hand goods are legally defined as goods suitable for further use as they are or after repair — so repaired items are not automatically excluded. But repair, refurbishment and restoration costs cannot be added to the purchase price when calculating the margin. The margin is strictly selling price minus purchase price.
What happens if I sell an item at a loss under the margin scheme?
No VAT is due on that sale — a negative margin produces nil VAT. Under the standard scheme you cannot use that loss to reduce VAT on your profitable sales. Only the Global Accounting Scheme lets losses and profits net off within an accounting period.
Do I need to register for VAT before I can use the margin scheme?
Yes — the scheme is a way of accounting for output tax, so it only applies to VAT-registered businesses. Registration is compulsory when taxable turnover exceeds the £90,000 threshold in a rolling 12-month period (2026/27). Margin-scheme sales count towards that threshold.
Can I mix the margin scheme and normal VAT rules on different items?
Yes. The scheme is optional on a sale-by-sale basis: sell some items under the scheme and others under the normal rules. But you cannot re-do a sale under the scheme once it has been made under normal rules — the choice is made at the time of sale.
What records must I keep, and for how long?
A stock book recording each item's stock number, purchase date, price and seller, sale date, price and buyer, the margin and the VAT due — plus your purchase and sales invoices. Keep everything for 6 years. If HMRC cannot verify your margins from your records, VAT becomes due on the full selling price.
Educational information and estimates. These tools do not submit VAT returns or determine the treatment of a specific transaction.