What Is the VAT Margin Scheme? (And Why It Matters If You Sell Second-Hand Goods)

If you buy and sell second-hand items, whether that’s cars, jewellery, antiques, collectables, or even the bits you flip on Vinted, you might have stumbled across something in HMRC’s rulebook called the VAT Margin Scheme.

If you’re first thought is “Absolutely not, that sounds complicated”… Stick with me, because the margin scheme can genuinely save you money, keep you compliant, and stop you from paying VAT you don’t actually owe. Let’s break it down.

So, what is the VAT Margin Scheme?

The VAT Margin Scheme is a special way of paying VAT when you sell second-hand goods, antiques, collectables, art, and certain other items. Instead of charging VAT on the full selling price, you only calculate VAT on your profit margin(meaning: what you sold it for minus what you paid for it).

Why? Because the item has already been sold once before with VAT in the price. HMRC don’t want you double-charged.

Who can use it?

It’s perfect for businesses that buy and resell used goods, including:

• Car dealers (used cars only)

• Jewellers selling pre-owned or vintage pieces

• Antiques and collectables dealers

• Art traders

• Pawnbrokers

• Online sellers who flip second-hand items (yes, that includes Vinted and eBay businesses)

• Charity shops (in certain cases)

  
  

But to qualify, the goods must be:

✔️ Second-hand

✔️ Bought in the UK

✔️ Bought from someone who didn’t charge you VAT (like a private seller or a non-VAT-registered business)

If you bought stock from a VAT-registered supplier and they charged you VAT, that item cannot go through the margin scheme.

How the Margin Scheme Actually Works

Instead of calculating VAT on the total sale price, you work it out like this:

Selling price – Purchase price = Margin

Margin × 1/6 = VAT owed

Why 1/6?Because it effectively backs VAT out of a VAT-inclusive profit margin.

Let’s look at some real-life examples.

Example 1: The Used Car Dealer

Tom buys a used car from a private seller for £4,000.He sells it a month later for £5,000.

Margin calculation:

£5,000 (selling price)– £4,000 (purchase price)= £1,000 margin

VAT is 1/6 of that margin:

£1,000 × 1/6 = £166.67 VAT

Tom only owes VAT on the £1,000 profit — not on the entire £5,000 sale.

If he had to charge VAT on the full price, the car would either be more expensive for the buyer… or his profit would disappear. So this scheme is a lifesaver for used car dealers.

Example 2: The Vintage Jewellery Seller

Amelia buys a pre-owned gold necklace from a private customer for £300.She resells it for £450.

Margin:

£450 – £300 = £150

VAT:£150 × 1/6 = £25 VAT

Again, she only pays VAT on the profit, not the total selling price which keeps her pricing competitive.

Example 3: The Antiques Dealer

Raj buys a Victorian chair at auction for £1,000.The auction house did not charge VAT (common with second-hand lots).He sells it for £1,600 in his shop.

Margin:

£1,600 – £1,000 = £600

VAT:£600 × 1/6 = £100 VAT

Raj keeps £500 profit after VAT

Example 4: The Vinted Seller

Sophie picks up a bundle of second-hand clothes from a non-VAT-registered seller for £80 and resells items individually on Vinted for a total of £160.

Margin:

£160 – £80 = £80

VAT:£80 × 1/6 = £13.33 VAT

For small sellers, this scheme can be the difference between profitable and pointless.

When You Can’t Use the Margin Scheme

There are a few items that can’t go through the scheme:

❌ New goods

❌ Goods bought from a VAT-registered seller who charged VAT

❌ Items you’ve imported

❌ Precious metals (e.g., gold bullion)

❌ Raw materials you’re planning to use to make something new

❌ Services. Only tangible goods count here

And importantly: If you make a loss, you cannot claim that back for VAT. You simply record a zero margin for that item.

Record-keeping is important (sorry, I know)

The margin scheme gives you a great tax advantage, but in return, HMRC expects really clean records.

You must record:

• The purchase price

• The sale price

• The date of both

• A unique stock number for each item

• A running “Margin Scheme” stock book

• Copies of purchase receipts

• Proof the seller didn’t charge VAT

  
  

Your normal sales invoices also need slightly different wording — they must say:

“This sale is made under the VAT Margin Scheme.”

(Your customer cannot reclaim VAT under this scheme, even if they’re VAT registered.)

Why the Margin Scheme Matters

For many second-hand businesses, standard VAT rules simply don’t work. Profits are too tight and customers expect competitive pricing. The margin scheme:

✔️ Helps keep your profit margins healthy

✔️ Stops double taxation

✔️ Makes pricing more flexible

✔️ Helps the second-hand market thrive

✔️ Levels the playing field against big retailers

Basically, it keeps the reselling world spinning.

Watch-outs to keep you out of trouble

⚠️ Keep every receipt. HMRC cares deeply about the purchase price.

⚠️ Don’t mix VAT-able stock with margin scheme stock.

⚠️ Check auction house paperwork. Sometimes VAT is charged on buyer’s premiums which affects eligibility.

⚠️ Don’t forget to state the correct wording on invoices. Customers cannot reclaim VAT, so make sure expectations are clear.

Final thoughts

The VAT Margin Scheme might look intimidating at first glance, but once you understand the logic behind it, it actually makes life easier and cheaper.

If you’re in the business of buying and selling second-hand goods, it’s one of the most useful tax tools at your disposal. It protects your margins, keeps your pricing competitive, and ensures you’re only paying VAT on the profit you actually make, not on the whole sale.

Whether you're shifting vintage rings, restoring antique furniture, dealing used cars, or flipping bits on Vinted, this scheme can be a massive help once you know how to use it properly. If you ever want help choosing the right version of the scheme, setting it up, or keeping the records tidy, that’s exactly what we're here for.