What Are VAT Margin Schemes and Am I Eligible?

VAT Margin Schemes are special VAT accounting methods created to make VAT fairer for businesses that sell second-hand goods, antiques, collectibles, and works of art. Instead of paying VAT on the full selling price, VAT is charged only on the profit margin — the difference between the purchase price and the selling price.

This approach is particularly important for dealers in used goods, where VAT may already have been paid when the item was first sold new. Charging VAT again on the full resale value would lead to double taxation and make prices uncompetitive.

Understanding the Basic Principle

Under a VAT Margin Scheme, VAT is included within your profit margin and is not shown separately on invoices. This means:

• You still pay VAT to the tax authority

• The buyer cannot reclaim VAT

• VAT applies only to the profit, not the total sale price

Margin schemes are commonly used by antique dealers, coin and banknote sellers, art dealers, vintage shops, and second-hand traders.

Types of Goods Covered by VAT Margin Schemes

VAT Margin Schemes can be used for:

• Second-hand goods

• Antiques (over 100 years old)

• Collectibles (coins, banknotes, stamps, medals)

• Works of art (original paintings, sculptures, limited prints)

Each category has specific rules, but the core principle remains the same: VAT is calculated only on the margin.

How VAT Is Calculated Under a Margin Scheme

VAT is calculated using the VAT fraction. At the standard UK VAT rate of 20%, the VAT fraction is 1/6.

This means:VAT due = Margin × 1/6

You do not add VAT on top of the selling price — it is already included within the margin.

Practical Examples

Example 1 – Second-hand goodsYou buy a second-hand item from a private individual for £100.You sell it for £150.

Purchase price: £100Selling price: £150Margin: £50

VAT due = £50 × 1/6 = £8.33

You pay £8.33 VAT, not VAT on the full £150.

Example 2 – Antiques or collectiblesYou buy an antique coin for £500 from another dealer who used a margin scheme.You later sell the coin for £650.

Purchase price: £500Selling price: £650Margin: £150

VAT due = £150 × 1/6 = £25

Only the £150 profit margin is taxed.

Example 3 – Loss-making saleYou buy a vintage item for £200 but sell it for £180.

Purchase price: £200Selling price: £180Margin: –£20

Because there is no profit, no VAT is due. Losses cannot be offset against other margins, but they reduce VAT liability on that specific sale.

Example 4 – Multiple items sold togetherYou buy three collectible items separately:

• Item A: bought for £100, sold for £140 (margin £40)

• Item B: bought for £200, sold for £230 (margin £30)

• Item C: bought for £150, sold for £140 (loss £10)

Each item is calculated separately:

• VAT applies to Item A and B

• No VAT applies to Item C

Margins cannot be averaged across items unless you are using an approved global accounting method.

Who Is Eligible to Use VAT Margin Schemes

You may use a VAT Margin Scheme if:

• You are VAT registered

• You sell eligible goods such as second-hand items, antiques, or collectibles

• You bought the goods without reclaiming VAT

• The goods were purchased from:

  • Private individuals

  • Non-VAT registered businesses

  • VAT-registered dealers using a margin scheme

• You keep detailed purchase and sales records for each item

Who Is Not Eligible

You cannot use a VAT Margin Scheme if:

• You reclaimed VAT on the purchase

• You sell new goods

• You sell services rather than goods

• You fail to keep proper records

• You issue invoices showing VAT separately

Record Keeping Requirements

Accurate record keeping is essential. You must keep:

• Purchase invoices or receipts

• Sales records with dates and prices

• A stock book or digital stock system

• Clear margin calculations for every item

These records must be available for inspection by HM Revenue & Customs.

Why VAT Margin Schemes Are Popular

VAT Margin Schemes are widely used because they:

• Reduce VAT liability

• Prevent double taxation

• Allow competitive pricing

• Are well suited to antiques, coins, and collectibles

• Provide clarity and fairness in the resale market

Common Mistakes to Avoid

• Showing VAT separately on invoices

• Using margin schemes for new goods

• Reclaiming VAT on purchases and later applying margin rules

• Poor or incomplete record keeping

These errors can result in penalties or backdated VAT assessments.

Final Thoughts

VAT Margin Schemes can significantly benefit businesses dealing in second-hand goods, antiques, and collectibles. When applied correctly, they ensure VAT is paid fairly on profit rather than turnover. However, strict rules apply, and good record keeping is essential.

If you are unsure whether a margin scheme is right for your business, professional advice or a detailed review of your stock and suppliers is strongly recommended.