VAT Margin Scheme Calculator

The calculation itself

Under a margin scheme, VAT is charged on the seller's margin rather than on the full selling price: VAT = (selling price − purchase price) × rate ÷ (1 + rate). The margin is treated as VAT-inclusive.

It exists for second-hand goods, antiques, art and collectors' items, where the seller bought from someone who charged no VAT, typically a private individual, and so has no input VAT to reclaim.

Running the numbers

A second-hand item bought privately for £180 and sold for £320. The margin is £140, and VAT at 20% within it is 140 ÷ 6 = £23.33.

Under normal VAT rules the seller would charge 20% on the full £320, £53.33, with no input VAT to offset, because the private seller charged none.

The margin scheme saves £30 on this item, or 9.4% of the selling price. On a business turning over £400,000 of second-hand goods at a 40% margin, it is the difference between a viable operation and one paying tax on value it did not add.

What gets missed

The scheme cannot be applied selectively per transaction in an arbitrary way, and it cannot be used at all for goods on which VAT was reclaimed at purchase. Buying from a VAT-registered supplier with VAT charged puts the item outside the scheme.

Record-keeping requirements are also unusually strict: a stock book recording each item's purchase and sale individually, with the margin computed per item. A loss on one item cannot be offset against a profit on another in most implementations.

What to do next

Keep the stock book from the first transaction rather than reconstructing it. The scheme's benefit depends entirely on evidence that is easy to capture at the time and effectively impossible to recreate.

Then check eligibility per item at purchase. The determining question is what the seller charged you, and recording that answer alongside the purchase is what makes the treatment defensible years later.

Global accounting and the low-value alternative

For businesses handling large volumes of low-value second-hand items, a global accounting variant lets the margin be calculated across total purchases and sales in a period rather than item by item. It removes the per-item stock book requirement.

The trade-off is that individual high-value items are usually excluded from the global scheme and must still be handled individually, and losses in a period can be carried forward rather than refunded.

For a business selling used goods at scale: a reseller, a charity shop chain, a bulk clothing operation, global accounting is frequently the difference between the scheme being usable and being theoretically available. It is worth establishing which variant applies before the volume makes the record-keeping question urgent.

A margin scheme invoice must not show VAT separately, and must carry a statement identifying the scheme used. Showing the VAT would allow a business customer to reclaim tax that was never charged on the full price.

Getting that wrong is not merely a formatting error. It creates a liability for the VAT shown on the invoice regardless of what was actually due, which can exceed the margin on the item entirely.