- You pay VAT on your margin (sale price minus purchase price), not the full sale price.
- The VAT due is one sixth of the margin (20% of the VAT-inclusive margin).
- It covers eligible second-hand goods, art, antiques and collectibles.
- You cannot reclaim VAT on items you buy under the scheme, and you cannot show VAT separately on invoices.
- If you make a loss on an item, there is no VAT to pay on it.
Work out the VAT
What the scheme is
Normally a VAT-registered business charges 20% VAT on the full price of what it sells, and reclaims VAT on what it buys. That breaks down for dealers in second-hand goods, who often buy from private individuals or unregistered sellers and so have no VAT to reclaim. Charging 20% on the full resale price would tax value that was never created by the dealer.
The margin scheme fixes this. You pay VAT only on your margin, the difference between purchase and sale price, at one sixth of that margin. On a £4,000 buy and a £5,000 sale, the margin is £1,000 and the VAT is about £167, instead of roughly £833 on the full price.
What's eligible
The scheme is for:
- Second-hand goods in a usable state
- Works of art
- Antiques and collectors' items
It does not apply to anything you bought and reclaimed VAT on, to investment gold, or to precious metals and gemstones. Cars have their own version of the scheme with extra rules.
The records you must keep
The margin scheme is optional, but if you use it the record-keeping is strict, because the margin is what is being taxed:
- A stock book tracking each item's purchase and sale
- Purchase and sales invoices that meet the scheme's specific requirements
- Invoices that do not show VAT separately (your buyer cannot reclaim it)
If you cannot evidence the purchase price of an item, you cannot use the scheme for it, and you would have to account for VAT on the full selling price.
The Global Accounting Scheme
For dealers in high volumes of low-value items, tracking every single item is impractical. The Global Accounting Scheme is a simplified version: you work out VAT on the total margin across all eligible purchases and sales in a period, rather than item by item. It suits, say, a bric-a-brac or used-book seller, but it cannot be used for higher-value goods above a set limit.