What is the VAT Margin Scheme? 

Normally VAT is charged on the full selling price of an item. But with second hand goods this often leads to double taxation, because VAT was already paid when the item was first sold as new. 

The VAT Margin Scheme avoids this by letting you charge VAT only on the difference between what you paid for the item and what you sell it for. In other words, VAT applies to your profit margin, not the full sale price.

Practical example 

Imagine you buy a second-hand designer handbag for £200 and resell it for £300. 

Under standard VAT rules you would owe VAT on the full £300. At 20% that means £50. 

Under the VAT Margin Scheme, you only owe VAT on the £100 profit margin. That is £20. 

In this case, the scheme saves you £30 on just one item. Multiply that across a year of sales and the savings quickly add up. 

Who can use the scheme? 

The VAT Margin Scheme is open to VAT registered businesses that sell: 

• Second hand goods 
• Works of art 
• Antiques 
• Collectors’ items 
• Used vehicles 

It is particularly useful for online resellers, boutique shops and traders who deal mainly in used goods. 

What if you sell both new and second-hand goods? 

Many resellers mix brand new and second-hand stock. You can still use the VAT Margin Scheme, but you must separate the two in your records. 

New goods are subject to normal VAT rules . Second hand goods can be sold under the margin scheme 

Good record keeping is essential! You will need to show what you paid for each second-hand item and what you sold it for. This supports the calculation of the margin.

How to apply the scheme on your VAT return 

You do not need special approval from HMRC to use the scheme, but you must already be VAT registered. 

On your VAT return: 

• Work out the total profit margin on all goods sold under the scheme in the period 
• Apply the VAT fraction (currently 1/6 for the 20% rate) to that margin 
• Report this figure in Box 1 of the return (output VAT) 
• The total sales under the scheme are reported in Box 6 

You cannot reclaim input VAT on margin scheme purchases, even if the supplier charged VAT. Instead, you only pay VAT on the margin when you resell.

Why the scheme matters for resellers 

The scheme levels the playing field for small businesses that buy and sell second hand items. Without it, VAT would be charged multiple times on the same goods, squeezing profit margins and making items more expensive for customers. 

For online sellers competing in busy marketplaces, the savings from the scheme can mean the difference between growth and struggle.

Lower VAT bills allow you to keep prices competitive or invest in more stock. 

Final thoughts 

If you buy and resell second hand goods, the VAT Margin Scheme is well worth considering. It can cut your VAT bill, protect your margins and make your pricing more attractive. 

The key is good record keeping and clear separation if you also sell new stock. With the right systems in place, the scheme is straightforward to use and can bring real financial benefits. 

If you want advice tailored to your business, get in touch and we can guide you through using the VAT Margin Scheme effectively.