VAT Margin Scheme Explained UK
UK VAT Margin Scheme guide for second-hand goods, artwork, antiques, and cars: 16.67% effective rate on profit margin, calculation examples, and stockbook rules.
In one sentence
The HMRC VAT Margin Scheme allows businesses selling eligible second-hand goods or vehicles to pay VAT at 16.67% on the profit margin rather than 20% on the total sales price.
Quick answer
- Calculated as 16.67% (1/6th) of the gross profit margin (Selling Price minus Purchase Price)
- Applies to second-hand cars, machinery, artwork, antiques, and collectors' items
- Invoices must carry the appropriate margin scheme wording and stockbook number, and must not show VAT separately
- Requires an up-to-date detailed margin scheme stockbook recording itemized purchases and sales
VAT Margin Scheme Explained: UK Guide for Second-Hand Goods
If your business buys and resells second-hand goods, motor vehicles, antiques, artwork, or collectors' items, using standard UK VAT rules can devastate your profit margins.
The HMRC VAT Margin Scheme allows you to calculate Value Added Tax based on the difference between what you paid for an item and what you sold it for, rather than charging 20% VAT on the full retail selling price.
How to Calculate VAT Under the Margin Scheme
Under the margin scheme, VAT is charged at an effective rate of 16.67% (1/6th) of your gross profit margin:
Profit Margin = Selling Price - Purchase Price
VAT Payable to HMRC = Profit Margin ÷ 6
Step-by-step example calculation
Imagine you run a second-hand car dealership or online refurbishment business:
- Purchase Price: You buy a second-hand vehicle from a private seller for £6,000 (no VAT charged).
- Selling Price: You sell the vehicle to a customer for £8,400.
- Gross Profit Margin: £8,400 - £6,000 = £2,400.
- VAT Payable: £2,400 ÷ 6 = £400.
Under standard VAT rules, you would have owed £1,400 in VAT (1/6 of the VAT-inclusive £8,400). The VAT Margin Scheme saves you £1,000 on a single transaction.
What goods are eligible for the Margin Scheme?
You can use the VAT Margin Scheme for most second-hand items, provided you purchased them under eligible conditions:
| Eligible Categories | Ineligible Goods / Conditions |
|---|---|
| Second-hand cars, vans, and motorcycles | Any item you bought where you were charged VAT |
| Second-hand machinery, electronics, and furniture | Precious metals, bullion, and investment gold |
| Works of art, antiques, and collectors' items | Precious stones and unmounted gems |
Vehicles follow separate rules, covered below.
You choose to use a margin scheme. You do not register for it: you can start at any time by keeping the right records and reporting the sales on your VAT return. Items that are not eligible are accounted for with VAT in the normal way.
You cannot include business overheads, repairs, parts or accessories in a margin scheme calculation. Reclaim the VAT on those on your VAT return in the normal way.
Strict Invoicing & Stockbook Requirements
HMRC enforces strict record-keeping rules for margin scheme businesses. If you do not meet all of the scheme's requirements, you have to pay VAT on the full selling price of each item.
- Mandatory Stockbook: You must maintain an up-to-date margin scheme stockbook containing item numbers, purchase dates, seller details, purchase prices, sales dates, buyer details, selling prices, and margin calculations. Keep VAT records for 6 years. For stock bought more than 6 years ago, keep the records until you sell the item.
- Sales Invoice Declaration: Sales invoices must carry the item's unique stockbook number and one of the wordings 'margin scheme - second hand goods', 'margin scheme - works of art' or 'margin scheme - collectors' items and antiques'. Show your VAT registration number too.
- No VAT Shown: You must not display a separate VAT amount on the sales invoice given to the customer.
Second-hand vehicles and other special rules
There are different rules for second-hand vehicles, horses and ponies, houseboats and caravans, and items that have been pawned. Auctioneers, agents, and trade in Northern Ireland and the EU also have their own rules.
For vehicles, a vehicle is second-hand when it has been driven on the road for business or pleasure or is suitable for further use. Category A and B write-offs cannot use the vehicle margin scheme.
Check the detailed rules in GOV.UK: VAT margin schemes and GOV.UK: margin scheme for second-hand vehicles.
For the filing process, read our guide on how to submit a VAT return.
Global Accounting Scheme for Low-Value Items
If you buy and sell bulk volume, low value goods, or cannot keep the records the standard margin scheme needs, you can use the Global Accounting Scheme, a simplified version. You account for VAT on the margin between your total eligible purchases and total eligible sales for the VAT period, not item by item. You cannot use it if an individual item has a purchase value of over £500, or for motor vehicles, aircraft, boats and outboard motors, caravans and motor caravans, or horses and ponies.
See GOV.UK: using the global accounting VAT margin scheme for the detailed requirements.
See how our specialist VAT accounting service maintains compliant margin scheme stockbooks and MTD returns.
Operating a second-hand or vehicle business?
Book a 30-minute call with an experienced UK VAT accountant. We will set up your margin scheme stockbook, verify eligible purchase invoices, and prepare your MTD VAT returns correctly.
Book a call →Frequently asked questions
What is the VAT margin scheme?
A VAT margin scheme taxes the difference between what you paid for an item and what you sold it for, rather than the full selling price. You pay VAT at 16.67% (one-sixth) of the difference. You can use one for second-hand goods, works of art, antiques and collectors' items, but not for items you bought with VAT charged, precious metals, investment gold or precious stones.
Can I use the margin scheme for second-hand cars?
Yes, there is a margin scheme for eligible second-hand vehicles, but it has its own rules. You cannot use it for new vehicles, imported vehicles, vehicles bought on an invoice that shows VAT separately, or vehicles where you reclaimed or could have reclaimed the VAT.
How do margin scheme sales appear on a VAT return?
Put the output tax on eligible goods sold in Box 1, the full selling price less the VAT due on the margin in Box 6, and the full purchase price of eligible goods bought in Box 7. You do not include margin scheme purchases or sales in Boxes 8 and 9.
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