What is a VAT margin scheme?

Definition of a VAT margin scheme

A VAT margin scheme is used to tax the difference between the amount that a business pays for certain items and the amount that it later sells those items for. VAT is charged on this difference at a rate of 16.67% (one-sixth).

A business can choose to use a VAT margin scheme when it sells:

• second-hand goods
• works of art and antiques
• collectors’ items

Businesses cannot use VAT margin schemes for:

• any item they buy on which they are charged VAT
• the sale of precious stones or metals, including investment gold

Businesses do not have to apply to use a VAT margin scheme but should keep a record that includes a stockbook and invoices for sales and purchases. The business should then report any goods sold using a margin scheme on its VAT return.

There are further rules for the sale of certain second-hand vehicles, horses and ponies and houseboats and caravans. Auctioneers, dealers and pawnbrokers are also subject to additional rules.

Businesses that sell high volumes of low-priced qualifying items (under £500 per item) may be eligible to use a simplified VAT margin scheme called the Global Accounting Scheme.

You should either speak to an accountant or check with HMRC if you’re in any doubt about using a VAT margin scheme.

Example of a VAT margin scheme in action

A VAT-registered business buys an antique bookcase from a member of the public for £1,000. As the member of the public is not registered for VAT, the business pays no VAT when it purchases the bookcase.

The business sells the bookcase for £1,400 at a later date. Using the VAT margin scheme for antiques, the business pays VAT to HMRC at a rate of 16.67% on the difference of £400. This means that the business owes £66.68 in VAT, which it reports on its next VAT return.