VAT Margin Scheme Calculator

Complete Guide to the VAT Margin Scheme

What Is the VAT Margin Scheme?

The VAT margin scheme is an optional VAT accounting method for businesses that buy and sell second-hand goods, works of art, antiques, and collectors' items. Instead of charging VAT on the full selling price (which would be unfair because the goods have already been in the VAT chain), VAT is only charged on the profit margin — the difference between what you paid and what you sell for. This prevents double taxation and makes dealing in second-hand goods commercially viable.

The scheme is governed by HMRC VAT Notice 718 and the VAT (Special Provisions) Order 1995. It requires VAT registration (turnover over £90,000 or voluntary registration) and meticulous stock record keeping. You can use the standard margin scheme or the global accounting option.

Eligible Goods

The margin scheme applies to the following categories of goods purchased without VAT (e.g. from private sellers, non-VAT-registered dealers, or other margin scheme users):

• Second-hand goods: any used movable goods fit for further use as-is or after repair. Includes cars, motorcycles, caravans, boats (of a certain type), furniture, electronics, clothing, and household items.
• Works of art: paintings, drawings, pastels, collages, prints, lithographs, sculptures, and tapestries — created by the artist. Must be handmade originals or limited editions.
• Antiques: items over 100 years old. Not reproductions.
• Collectors' items: postage stamps (used or unused), revenue stamps, first-day covers, philatelic items, coins and currency no longer in legal tender, banknotes.

Ineligible Goods

The margin scheme cannot be used for:

• Investment gold (covered by a separate HMRC scheme)
• Precious stones and metals in raw or semi-manufactured form
• Goods where VAT was charged to you on purchase (you must use standard VAT accounting for these)
• New goods (only second-hand and used items)
• Goods imported into the UK (different import VAT rules apply at the border)
• Motor vehicles acquired from a VAT-registered business that charged VAT

How to Calculate Margin Scheme VAT

The calculation uses the VAT fraction method, which extracts the VAT already included in the margin:

The 1/6 fraction is derived from the fact that 20% VAT rate means £20 VAT per £100 net, or £20 VAT per £120 gross — which is 20/120 = 1/6. If you made no margin (sold for the same as you paid), no VAT is due. If you made a negative margin, no VAT is due and you cannot carry the loss forward (unlike standard VAT input credits).

Global Accounting Option

For dealers in high volumes of low-value items, global accounting simplifies the paperwork. Instead of calculating a margin per item, you calculate the total margin for all eligible goods sold in a VAT period:

Who can use it: Any margin scheme dealer, except for motor vehicles, horses, ponies, and items worth more than £500. You must maintain a global account stock book showing opening stock, purchases, sales, and closing stock each period.

Advantages: Items with losses automatically offset items with gains in the same period, reducing overall VAT. Greatly reduces administration for high-volume dealers. Can be combined with the standard margin scheme (standard for cars and high-value items, global for everything else).

Record Keeping Requirements

HMRC imposes strict record keeping obligations for the margin scheme. For the standard scheme, you must keep a purchase and sales stock book containing:

• Sequential stock number for each item
• Description of the goods (make, model, year, condition)
• Date of purchase and name/address of seller
• Purchase price
• Date of sale and any sale reference
• Selling price
• Margin VAT calculation

The purchase invoice from the seller must also be retained. If buying from a private individual, a simple signed receipt showing the goods, price, and buyer/seller names is acceptable. Records must be retained for 6 years. HMRC inspectors are entitled to inspect stock books during VAT visits.

Online Sellers: eBay, Vinted and Depop

Online second-hand sellers can use the margin scheme if they are VAT-registered. The scheme is highly beneficial on platforms like eBay, Vinted, and Depop where you buy items from private individuals and resell at a profit — the classic margin scheme scenario.

Practical tips for online sellers:

• Keep records of every item purchased: eBay order confirmations, Vinted transaction records, PayPal receipts
• Note the condition and description of each item — HMRC may ask for substantiation
• Platform selling fees (eBay final value fees, Vinted buyer protection fees) can be included as costs in your margin calculation when deductible
• Postage costs you charge separately are NOT part of the margin scheme margin — treat them as standard VAT supplies
• Most online sellers below the £90,000 VAT threshold are not required to VAT register, so the margin scheme only applies once registered

From January 2024 digital platforms (eBay, Amazon, etc.) must report UK seller data to HMRC under the OECD DAC7 rules. Sellers with significant turnover should ensure their VAT position is reviewed.

HMRC VAT Notice 718 — Key Points

HMRC VAT Notice 718 is the definitive guide to the margin scheme. Key rules summarised:

• Election: The margin scheme is optional. You can choose to use it on an item-by-item basis. If you opt not to use it, standard VAT applies.
• No VAT invoice: You must never issue a VAT invoice for margin scheme goods. The buyer cannot reclaim VAT. If a buyer insists on a VAT invoice, you must sell outside the scheme at full 20% VAT.
• Motor vehicles: Used cars are a major use case. You cannot use the scheme for a car you purchased with VAT charged (e.g. buying from a VAT-registered car dealer who charged you 20% VAT). You CAN use it for a car purchased from a private individual (no VAT charged) or another margin scheme dealer.
• Auctioneers' scheme: A related scheme where the auctioneer accounts for VAT on their commission and the vendor pays no VAT — similar principles apply.
• No input VAT recovery: When you use the margin scheme, you cannot reclaim VAT on purchases relating to those goods. If you are unsure whether to use the margin scheme or standard accounting, compare the VAT payable under each method.

Worked Examples: VAT Margin Scheme