Glossary · UK
What is VAT Margin Scheme?
A VAT scheme allowing businesses selling second-hand goods, antiques, art or collectibles to pay VAT only on their profit margin rather than the full selling price.
Full Definition
The VAT Margin Scheme is an optional VAT accounting scheme available to VAT-registered businesses that buy and sell eligible second-hand goods, works of art, antiques and collectors' items. Instead of accounting for VAT on the full selling price of an item, businesses using the margin scheme pay VAT only on the difference between the purchase price and the selling price (the profit margin). This prevents double taxation: because the original buyer of the goods paid VAT when the goods were new, the scheme ensures VAT is only charged on the value added by the dealer. The margin is calculated on an individual item basis (the "global accounting" variant allows calculation on batches of goods). VAT is calculated on the margin using the VAT fraction -- for the standard 20% rate this is 1/6 -- so the VAT due is one-sixth of the margin. No VAT is shown separately on invoices to customers, and the customer cannot reclaim VAT on their purchase. Eligible goods include second-hand cars, antiques (over 100 years old), works of art, and collectors' items such as stamps and coins. The scheme cannot be used for goods on which VAT was charged when they were purchased by the dealer (i.e. goods bought from a VAT-registered business that showed VAT on the invoice). Dealers must keep detailed stock records for each eligible item. There are specialist variants: the Auctioneers' Scheme and the Global Accounting scheme. The scheme is administered by HMRC and businesses account for margin scheme VAT on their normal VAT return.