The VAT Margin Scheme allows businesses to pay VAT only on the profit margin of certain goods, rather than the full selling price.
This scheme is commonly used by businesses that buy and sell second-hand goods, antiques, or collectibles. This guide explains how it works, when it applies, and how to calculate VAT under the scheme.
What is the VAT Margin Scheme?
The VAT Margin Scheme allows you to pay VAT on the difference between what you paid for an item and what you sold it for.
Instead of charging VAT on the full selling price, VAT is calculated only on your profit margin.
This can reduce the amount of VAT you pay compared to standard VAT rules.
Who Can Use the VAT Margin Scheme?
The scheme is available to VAT-registered businesses that buy and sell eligible goods.
These typically include:
- Second-hand goods
- Antiques
- Works of art
- Collectors’ items
The goods must usually be purchased without VAT being charged.
When Can You Use the Margin Scheme?
You can use the margin scheme when:
- You purchased goods without VAT
- You are reselling those goods
- The goods are eligible under HMRC rules
If VAT was charged when you bought the item, standard VAT rules may apply instead.
How to Calculate VAT Under the Margin Scheme
To calculate VAT under the Margin Scheme:
- Work out the selling price
- Subtract the purchase price
- Calculate VAT on the margin
Example:
Selling price: £500
Purchase price: £300
Margin: £200
VAT = £200 × 20% = £40
Tip: Keep detailed purchase and sales records, as HMRC requires evidence when using the margin scheme.
Do You Charge VAT on the Full Price?
No, under the Margin Scheme you do not charge VAT on the full selling price.
VAT is only applied to the profit margin.
You also do not show VAT separately on invoices issued under this scheme.
Advantages of the VAT Margin Scheme
The scheme offers several advantages:
- Reduced VAT liability
- Simpler pricing for second-hand goods
- Useful for specific industries
It is particularly beneficial for businesses dealing in used goods.
Disadvantages of the VAT Margin Scheme
There are some limitations:
- Not all goods qualify
- You cannot reclaim VAT on purchases
- Requires accurate record keeping
You should assess whether it suits your business before using it.
Understanding VAT Calculations
Even when using the margin scheme, understanding how VAT works is essential.
You can learn how to calculate VAT or remove VAT using our step-by-step guides.
Use a VAT Calculator for accuracy.
If you need to calculate VAT on margins or standard sales, a calculator can help ensure accuracy.
Use our VAT calculator to quickly work out VAT figures for your business.
VAT Margin Scheme FAQs
Can I use the Margin Scheme for all goods?
No, only specific goods such as second-hand items and antiques qualify.
Do I show VAT on invoices?
No, VAT is not shown separately when using the Margin Scheme.
Can I reclaim VAT on purchases?
No, VAT cannot be reclaimed under the Margin Scheme.
Disclaimer
This guide is for general information only. While every effort is made to ensure accuracy, we are an independent resource and not affiliated with HMRC. Always consult a qualified professional for financial decisions.