VAT Margin Scheme for Second-Hand Goods UK 2026

What is the VAT Margin Scheme?

The VAT Margin Scheme is a special VAT accounting method for businesses that buy and sell eligible second-hand goods, antiques, works of art, and collector's items. Instead of charging VAT on the full selling price, the business charges VAT only on the profit margin -- the difference between the purchase price and the selling price.

This prevents double VAT taxation. When a private individual sells a second-hand item to a dealer, they cannot provide a VAT invoice because they are not VAT-registered. If the dealer then had to charge VAT on the full resale price, VAT would effectively be charged on the value that had already borne VAT when the item was originally purchased new. The Margin Scheme avoids this by taxing only the value added by the dealer.

The Margin Scheme is optional, not mandatory. Businesses can choose to apply it to eligible goods or use the standard VAT rules instead.

Who can use the Margin Scheme?

Any VAT-registered business that buys and sells eligible goods can use the Margin Scheme, provided they acquired the goods from:

• A private individual (no VAT invoice).
• A business that sold the item under the Margin Scheme (the seller should not have issued a separate VAT amount on their invoice).
• A business that was not VAT-registered.
• A business that sold the goods as exempt supplies.

You cannot use the Margin Scheme for goods you purchased with a standard VAT invoice (where VAT was charged separately). In that case, you reclaim the input VAT in the normal way and charge VAT on the full selling price when you resell.

Eligible goods

The Margin Scheme covers:

• Second-hand goods: tangible moveable property that is suitable for further use as it is or after repair. This covers second-hand cars, furniture, clothing, books, machinery, bicycles, electronics, jewellery, and most physical goods previously used.
• Works of art: paintings, drawings, pastels, collages, sculptures, tapestries, ceramics, photographs, and prints produced by the artist.
• Collector's items: postage stamps, revenue stamps, and similar items; zoological, botanical, mineralogical, anatomical, historical, archaeological, or numismatic collections.
• Antiques: goods over 100 years old that are not works of art or collector's items.

Not eligible for the Margin Scheme:

• New goods.
• Precious metals (gold, silver, platinum in investment form).
• Investment gold (covered by a separate regime).
• Land and buildings.
• Goods that cannot be used again in their current state and cannot reasonably be repaired.

How the calculation works

The VAT-inclusive margin method

The standard calculation treats the margin as VAT-inclusive. This means:

VAT = Margin / 6 (for 20% standard-rated goods)

The reasoning: if the margin is £300 and VAT is included within that £300, then at 20% VAT:

• VAT fraction = 20 / 120 = 1/6
• VAT = £300 / 6 = £50
• Net margin (before VAT): £300 - £50 = £250

What counts as the margin?

The margin is simply: Selling price minus Purchase price.

If the margin is negative (you sold for less than you paid), the margin is zero for VAT purposes. You cannot create a negative VAT liability under the Margin Scheme. You also cannot offset a negative margin on one item against a positive margin on another item (unless using global accounting -- see below).

If the margin is zero (sold for the same price as bought), VAT is zero.

Worked example

An antique dealer buys and sells the following items in a VAT quarter:

Total VAT due under Margin Scheme for the quarter: £58.33 + £0 + £183.33 + £23.33 + £0 = £265.00

Under the standard VAT scheme, the dealer would charge 20% VAT on the total sales of £4,300 (VAT = £716.67) and reclaim input VAT on purchases -- but since the goods were bought from private individuals without VAT invoices, no input VAT is available. The Margin Scheme dramatically reduces the VAT burden.

Global accounting scheme

The global accounting variant of the Margin Scheme is available for businesses dealing in large volumes of low-value goods (typically under £500 purchase price per item). Instead of tracking each item individually, the business totals up all eligible purchases in a period and all eligible sales, and calculates the overall margin.

Global accounting margin = Total selling prices of eligible goods - Total purchase prices of eligible goods

VAT = 1/6 of the global margin (if positive).

If the global margin is negative in any period, no VAT is due but the negative amount cannot be carried forward to offset future positive margins.

Global accounting is simpler for high-volume dealers (e.g. charity shops, market traders, vintage clothing dealers) but less precise. Some businesses mix both methods -- using individual item accounting for high-value pieces and global accounting for low-value stock.

The auctioneers scheme

Auctioneers selling second-hand goods on behalf of private sellers have their own variant: the auctioneers Margin Scheme. The auctioneer:

• Does not own the goods.
• Acts as agent for the seller.
• Charges a buyer's premium and/or a seller's commission.

Under the auctioneers scheme, VAT is calculated on the hammer price minus the price paid to the seller (the auctioneer's margin, essentially their commission). The auctioneers scheme avoids the auctioneer having to account for VAT on the full sale price of goods they do not own.

Auctioneers can opt in to the auctioneers scheme or use standard VAT rules. Specialist advice is generally needed for auction houses with complex multi-lot sales.

When NOT to use the Margin Scheme

1. If you bought with a VAT invoice

If you purchased the goods with a valid VAT invoice and reclaimed input VAT, you cannot use the Margin Scheme on that supply. You must account for VAT on the full selling price and can recover the input VAT in the normal way.

2. If you export the goods

Goods exported outside Great Britain are zero-rated under normal VAT rules. You may be better off using standard VAT (zero-rate the export, reclaim any related input VAT) rather than the Margin Scheme where the margin might still technically be taxable.

3. If the buyer is a VAT-registered business needing a VAT invoice

Under the Margin Scheme, you cannot issue a VAT invoice showing a separate VAT amount. If your customer is VAT-registered and needs to reclaim VAT, they cannot do so from a margin scheme purchase. In these cases, use standard VAT rules and issue a proper VAT invoice -- your customer reclaims the full VAT and you charge VAT on the full selling price.

4. If you are making a loss on every item

Where purchase prices consistently exceed selling prices, the Margin Scheme offers no VAT advantage (the nil-floor means no refund is available on loss-making items). Consider whether the business model is viable.

Record-keeping requirements: the stock book

The Margin Scheme requires a stock book -- a record that tracks every eligible item from purchase to sale. HMRC specifies the minimum contents of each stock book entry:

On purchase:

• Date of purchase.
• Description of the item (sufficient to identify it uniquely).
• Purchase price.
• Reference number or stock number assigned to the item.
• Name and address of the seller (if applicable).

On sale:

• Date of sale.
• Selling price.
• Reference to the purchase entry.
• The margin and VAT calculated.

Records must be kept for 6 years (the standard VAT record retention period, extended to 6 years from the default 4 for some records).

The stock book can be maintained electronically. HMRC inspectors may request access to it during a VAT compliance visit.

VAT return reporting

Margin scheme VAT is included in Box 1 of the VAT return (VAT due on sales). The full selling price is included in Box 6 (total value of sales), not just the margin -- this is a common error. HMRC expects Box 6 to show the full turnover, with the reduced VAT in Box 1 reflecting the margin scheme calculation.

Interaction with import VAT

When goods are imported into the UK from outside Great Britain, import VAT is charged at the border. If you import second-hand goods (e.g. antiques from an EU dealer), you will have paid import VAT. If you reclaimed that import VAT as input tax, you cannot then use the Margin Scheme on the subsequent resale.

If you paid import VAT but chose not to reclaim it (e.g. because you want to use the Margin Scheme), HMRC allows you to include the import VAT in your cost price for Margin Scheme purposes -- this reduces your effective margin and your VAT liability on resale.

Specialist advice is recommended for regular importers of second-hand goods.

Sources

• HMRC: VAT margin schemes
• HMRC: VAT Notice 718: Margin Scheme
• HMRC: Record keeping for VAT