VAT Margin Calculator

The VAT Margin Scheme is a special accounting scheme that allows businesses to pay VAT only on the profit margin of certain items, rather than on the full selling price. It's designed for businesses that:

• Sell second-hand goods, works of art, antiques, or collectibles
• Cannot reclaim VAT on their purchases (typically because they bought the items from private individuals or non-VAT registered businesses)

Instead of charging VAT on the full selling price, you calculate VAT only on your profit margin (the difference between what you paid for an item and what you sell it for). The VAT is calculated at 16.67% of the margin (equivalent to dividing by 6).

For a more detailed explanation, visit our What is the VAT Margin Scheme? page.

The Margin Scheme is particularly beneficial for businesses that regularly buy items from the general public or non-VAT registered sources and then resell them. These typically include:

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

The scheme is particularly valuable when you're buying goods that you cannot reclaim VAT on, as it prevents double taxation and ensures you're only paying VAT on your actual profit.

No, you don't need to apply for or get approval from HMRC to use the VAT Margin Scheme. Any VAT-registered business can use the scheme for eligible items without prior permission.

However, you do need to:

• Make sure the goods you're selling are eligible for the scheme
• Keep proper records as required by HMRC
• Correctly mark your sales invoices with "Margin Scheme - Second-hand goods" (or similar wording appropriate to the category)

While no formal application is needed, it's advisable to ensure your accounting systems are set up correctly to handle Margin Scheme transactions before you start using it.

HMRC requires specific and detailed records for sales made under the Margin Scheme. You must keep:

1. Stock records, which should include:
   • A description of each item
   • The purchase price and date
   • The selling price and date
   • The name and address of your supplier (where known)
2. Purchase documentation, which could be:
   • Receipts from private individuals
   • Margin Scheme invoices from other dealers
   • Any other evidence of purchase and price paid
3. Sales documentation, which must include:
   • Invoices clearly marked as "Margin Scheme - Second-hand goods" (or similar appropriate wording)
   • Till receipts or other sales evidence

You must keep these records for at least 6 years. HMRC also recommends keeping Margin Scheme records separate from standard-rated sales records to simplify inspection if needed.

Yes, you can use the Margin Scheme for goods you've accepted as part-exchange or trade-in, but there are specific rules to follow:

• As a purchase: When you accept an item as part-exchange, you can treat this as a purchase for Margin Scheme purposes. You'll need to:
  • Record a reasonable market value for the item
  • Issue a receipt to the customer showing the value you've placed on their trade-in
  • Keep this documentation for your records
• As part of a sale: When you sell an item and accept another as part-exchange:
  • You must account for VAT on the full margin of the item you're selling
  • The part-exchange doesn't reduce the VAT payable on the sale
  • You then record the part-exchanged item as a new purchase in your stock records

For example, if you sell an antique for £500 (that you purchased for £300) and accept another item valued at £200 as part-exchange, you'd still calculate VAT on the £200 margin of the item you're selling, and then record the part-exchanged item as a new £200 purchase in your stock.

If you make a loss on an item under the Margin Scheme (i.e., your selling price is less than your purchase price), then:

• No VAT is due on that specific item (you can't have a negative VAT amount)
• You cannot offset this loss against the margins on other items
• Each item is treated independently for Margin Scheme purposes

For example, if you bought an item for £200 and sell it for £180:

• Your margin is -£20 (a loss)
• No VAT is due on this item
• You cannot use this -£20 to reduce the margin on another profitable item

This is different from standard VAT accounting where input and output tax are offset against each other. Under the Margin Scheme, each item's VAT calculation stands alone.

No, repair, restoration, or any other costs cannot be included in the margin calculation itself. The margin is strictly defined as:

Margin = Selling Price - Purchase Price

However, these additional costs are still relevant to your overall profitability and business decisions. Our calculator includes an "Other Costs" field so you can see your true profit after accounting for both VAT and these additional expenses.

For VAT purposes:

• If you're VAT registered, you can reclaim the VAT on repair services, materials, or restoration costs as normal input tax on your VAT return
• These reclaimed amounts are separate from your Margin Scheme calculations
• The VAT due under the Margin Scheme remains based solely on the difference between purchase and selling prices

This is why our calculator shows "Profit" as a separate figure from "VAT Due" - to help you understand your true profitability after all factors are considered.

You can use both standard VAT accounting and the Margin Scheme within your business, but with important restrictions:

• For different items: You can use standard VAT for some items and the Margin Scheme for others, as long as they're clearly separated in your records
• For the same item: Once you've chosen how to treat a particular item (standard VAT or Margin Scheme), you cannot switch methods for that specific item

For example:

• If you buy a second-hand item with a VAT invoice and reclaim the input VAT, you must use standard VAT accounting when you sell it
• If you buy an item under the Margin Scheme, you must sell it under the Margin Scheme

The decision on which method to use typically depends on:

• Whether you received a VAT invoice when purchasing the item
• Who your customers are (VAT-registered businesses may prefer standard VAT invoices so they can reclaim the VAT)
• Which method is more financially beneficial in each case

You must keep clear records showing which method you've used for each item in your stock.