How does the VAT margin scheme work for second-hand goods?

Full answer

Normally VAT is charged on the full selling price. The margin scheme instead charges VAT only on your margin (selling price minus purchase price) for eligible second-hand goods, works of art, antiques and collectors' items, typically bought from non-VAT-registered sellers where you could not reclaim input VAT. The VAT fraction inside the margin is one sixth, because the rate is 20%. Worked example: a used-car dealer buys a vehicle for GBP 6,000 from a private seller (no VAT invoice) and sells it for GBP 7,800. The margin is GBP 7,800 - GBP 6,000 = GBP 1,800. VAT due is GBP 1,800 / 6 = GBP 300. Without the scheme, VAT on the full GBP 7,800 would be GBP 1,300, so the margin scheme saves GBP 1,000 of VAT and lets the dealer price competitively against private sellers. Key rules: you cannot reclaim VAT on the purchase of margin-scheme goods, you must keep a detailed stock book linking each purchase to each sale, and your invoices must not show VAT separately. If you make a loss on an item, the VAT on that sale is nil, but you cannot offset that loss against the margin on other items. A separate Global Accounting variant exists for low-value bulk items. Use the VAT calculator to work out the VAT inside a given margin (divide by 6). Because record-keeping and eligibility conditions are strict, check the exact requirements and qualifying-goods list at gov.uk before using the scheme.

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