VAT Margin Calculator

Understanding the VAT Margin Scheme

The VAT Margin Scheme is a special arrangement that allows businesses selling eligible second-hand goods, works of art, antiques, or collectibles to pay VAT only on the profit margin of an item, rather than on the full selling price.

Under normal VAT rules, a VAT-registered business would charge VAT on the full selling price of goods and reclaim any VAT paid on purchases. However, this creates a problem when buying goods from non-VAT registered individuals (like members of the public) or businesses that didn't charge VAT.

The Margin Scheme solves this problem by allowing businesses to pay VAT only on their profit margin. This prevents 'double taxation' on goods that have already been owned by consumers who paid VAT when they originally purchased the items.

Who Can Use the VAT Margin Scheme?

The scheme is available to VAT-registered businesses that deal in:

• Second-hand goods
• Works of art
• Antiques (items over 100 years old)
• Collectibles and certain other items

Common businesses that use the scheme include:

• Used car dealers
• Antique shops
• Art galleries selling works by non-VAT registered artists
• Vintage clothing shops
• Second-hand furniture retailers
• Auction houses

When Can You Use the Margin Scheme?

You can use the Margin Scheme when:

• You've purchased eligible goods from a non-VAT registered person (like a member of the public)
• You've purchased eligible goods from a VAT-registered business that also used the Margin Scheme
• You've purchased eligible goods where no VAT was chargeable (such as from a business that wasn't VAT registered)
• You've acquired eligible goods for no payment (such as goods taken as part-exchange)

When Can't You Use the Margin Scheme?

You cannot use the Margin Scheme when:

• You've purchased goods from a VAT-registered business that charged standard-rate VAT (and provided a VAT invoice)
• The goods are not eligible (such as new items)
• You've manufactured or altered the goods significantly beyond repair or restoration
• You're not the legal owner of the goods (such as when selling on consignment, unless specific arrangements are made)

How the VAT Margin Scheme Works

Under the Margin Scheme:

1. You calculate your margin: Selling Price - Purchase Price
2. You calculate the VAT due: Margin ÷ 6 (which is equivalent to 16.67% of the margin)
3. You pay this amount to HMRC as part of your normal VAT return

For example, if you buy an antique table for £120 from a private individual and sell it for £200, your margin is £80. The VAT due would be £80 ÷ 6 = £13.33.

Record-Keeping Requirements

HMRC requires specific record-keeping for the Margin Scheme. You must keep:

• Stock books showing purchases and sales
• Purchase invoices/receipts
• Sales invoices/receipts (marked 'Margin Scheme - Second-hand goods' or similar)
• Details of the goods (description, purchase price, and selling price)

Records must be kept for at least 6 years, and HMRC recommends maintaining separate records for Margin Scheme items from your standard-rated sales.

Limitations and Considerations

When using the Margin Scheme:

• You cannot issue a VAT invoice for your sales
• Your customers cannot reclaim the VAT paid
• You must use either the Margin Scheme or standard VAT accounting for a particular item – not both
• Global Accounting (a simplified version for bulk items) may be available in some cases

Calculate Your VAT Easily

Our VAT Margin Calculator makes it simple to calculate the VAT due on your Margin Scheme items. You can enter multiple items, include additional costs, and get clear results showing margins, VAT, and profit.

Try the Calculator Now