The VAT Margin Scheme for Second Hand Goods: A 2026 Guide for Resellers
If you buy and sell second hand goods, antiques, art or used cars, the VAT margin scheme can cut your VAT bill sharply. Instead of charging VAT on the full selling price, you pay VAT only on your margin, the difference between what you paid for an item and what you sold it for. On most stock bought from private sellers that turns a large VAT charge into a small one. This guide explains how the scheme works in 2026, which goods qualify, the records you must keep, and how the numbers land, with a calculator so you can check any deal.
What is the VAT margin scheme?
The VAT margin scheme is a way of accounting for VAT on second hand goods where you pay tax on your margin rather than on the full sale price. Your margin is the difference between the price you paid for an item and the price you sold it for. The scheme exists to stop the same goods being taxed twice, because most used stock is bought from people who did not add VAT in the first place, so there was no VAT for you to reclaim. Using the scheme is optional, and you can start using it at any time on goods that qualify.
How do you work out VAT on the margin?
You take the selling price, subtract the purchase price to get your margin, then charge VAT at one sixth of that margin. One sixth, or 16.67 percent, is used because the margin already includes the VAT at the standard 20 percent rate. HMRC gives this example: you buy a work of art for £1,500 and sell it for £2,000, so the margin is £500 and the VAT due is £83.33. If you sell an item for the same as you paid or less, the margin is nil and no VAT is due on it.
| Step | Figure |
|---|---|
| Selling price | £7,200 |
| Purchase price | £6,000 |
| Margin | £1,200 |
| VAT due, one sixth of the margin | £200 |
Margin scheme calculator
Enter what you paid for an item and what you sold it for. The calculator shows your margin, the VAT due at one sixth, and how much you save compared with charging VAT on the full price.
VAT is one sixth of your margin. The full price figure is what you would owe without the scheme, treating the sale price as VAT inclusive.
Which goods qualify?
The scheme covers second hand goods, works of art, antiques and collectors’ items. The condition that matters is how you bought the item. It qualifies only where you were not charged VAT that you could reclaim, which is normally the case when you buy from a private individual, from a seller who is not registered for VAT, or from another dealer who is themselves selling to you under the scheme. If you paid VAT on a normal invoice and could reclaim it, the item cannot go through the scheme.
| How you bought the item | Margin scheme |
|---|---|
| From a private individual | Yes |
| From a business not registered for VAT | Yes |
| From a dealer selling to you under the margin scheme | Yes |
| On a normal VAT invoice you can reclaim | No, use normal VAT |
Which goods cannot use it?
Some items are shut out of the scheme whatever their history. You cannot use it for anything you bought on a VAT invoice where the VAT was reclaimable, because that VAT has already been recovered. You also cannot use it for investment gold, for precious metals, or for precious stones. For those you follow the normal VAT rules on the full value.
- Any item bought on an invoice showing VAT that you were able to reclaim.
- Investment gold, which has its own separate VAT treatment.
- Precious metals and precious stones.
What records must you keep?
The scheme depends on your records. If you cannot show how you worked out each margin, HMRC can make you account for VAT on the full selling price instead, so the paperwork is what protects the tax saving. You need a stock book that tracks every item, along with the purchase and sales invoices behind it, and you keep all of it for six years, in the digital records that Making Tax Digital now requires.
- Give every item a stock number and record the date you bought it, the purchase invoice number, the price you paid, the seller’s name and a description.
- When it sells, record the date, the sales invoice number, the selling price, the buyer’s name, the margin and the VAT due.
- Keep the matching purchase and sales invoices, each cross referenced to the stock number.
- Hold the stock book and invoices for six years in case HMRC asks to see them.
How to invoice under the scheme
Invoices under the scheme work differently from normal VAT invoices. You must not show VAT as a separate figure, because the buyer is not allowed to reclaim any VAT on such a purchase. Instead the invoice shows the total price and carries a short reference so it is clear which scheme applies. HMRC accepts wording such as margin scheme second hand goods, margin scheme works of art, or margin scheme collectors’ items and antiques, depending on what you sold.
Second hand cars and motor traders
Used vehicle dealers use the scheme in the same way, paying VAT at one sixth of the difference between what they paid for a vehicle and what they sold it for. The stock book carries the vehicle registration number as well as the make and model, so each car can be identified. Two points catch motor traders out. A car bought on an invoice that shows VAT charged separately cannot go through the scheme at all. And the cost of repairs, reconditioning, parts or preparing a vehicle for sale cannot be added to the purchase price, so it does not reduce the margin you pay VAT on.
Selling cars from Great Britain into Northern Ireland
There is an important exception for vehicles that cross the Irish Sea. Since 1 May 2023 you can no longer use the scheme for used vehicles bought in Great Britain and moved to Northern Ireland for resale. In its place there is the second hand motor vehicle payment scheme. Rather than taxing a margin, it lets you claim a VAT related payment worth one sixth of the price you paid for the vehicle, which you enter on your VAT return. So a car bought for £12,000 gives a £2,000 payment. Vehicles bought within Northern Ireland or in the European Union are not part of the payment scheme and may still qualify for it.
The global accounting scheme
Global accounting is a lighter version of the scheme for businesses that deal in high volumes of low value used goods, where recording every single item is not practical. Instead of an item by item margin, you work out VAT on the difference between your total eligible purchases and total eligible sales in a period, then charge one sixth. If your purchases in a period come to more than your sales, the negative margin carries forward to the next period. It does have limits. You cannot use it for any item that cost more than £500, and several categories are barred, including cars and other motor vehicles, aircraft, boats and outboard motors, caravans, and horses and ponies.
The Auctioneers’ Scheme
Auctioneers have their own version of the scheme because they sell goods in their own name on behalf of others. Here the margin is built from the auctioneer’s charges. The purchase price is the hammer price less the commission charged to the seller, and the selling price is the hammer price plus the buyer’s premium and any charges to the buyer. VAT is one sixth of the resulting margin, which in practice is the buyer’s premium and the seller’s commission combined. As with the standard scheme, these charges must not show VAT separately on the invoice.
Works of art, antiques and collectors’ items
Art, antiques and collectors’ items are eligible in the same way as other used goods, and HMRC has clear definitions. An antique is an object more than one hundred years old that is not a work of art or a collectors’ item. A work of art covers hand made pictures, paintings, drawings, sculptures and similar pieces, and collectors’ items include things like stamps and coins of collecting interest, though not investment gold coins. There is a special rule for pieces you import. Qualifying works of art, antiques and collectors’ items carry an effective import VAT rate of 5 percent, worked out by applying the 20 percent rate to a quarter of the value. If you later sell an imported piece under the scheme, your purchase price is the value at import plus that import VAT, and you do not reclaim the import VAT separately.
When does it save you money?
For most resellers who buy from private individuals, the scheme almost always wins, because there was no VAT on the purchase for you to reclaim. Without it you would charge VAT on the entire selling price with nothing to offset. With it you charge VAT on the margin alone. The table shows a used car bought for £6,000 from a private seller and sold for £7,200.
| Feature | Margin scheme | Normal VAT |
|---|---|---|
| VAT is charged on | The £1,200 margin | The £7,200 full price |
| VAT due | £200 | £1,200 |
| Buyer can reclaim the VAT | No | Yes, if VAT registered |
The one situation where normal VAT can be better is selling to a VAT registered buyer who can reclaim. Because such an invoice shows no separate VAT, that buyer has nothing to recover, whereas charging VAT normally would be neutral for them and might make your goods more attractive. For sales to the public, the scheme is almost always the cheaper route.
Common mistakes to avoid
- Putting an item through the scheme after buying it on a VAT invoice you reclaimed, which is not allowed.
- Adding repair, restoration or reconditioning costs to the purchase price to shrink the margin.
- Showing VAT as a separate figure on one of these invoices.
- Offsetting a loss on one item against the profit on another under the standard scheme, rather than treating each item alone.
- Still using the scheme for cars moved from Great Britain to Northern Ireland instead of the payment scheme.
- Losing the stock book detail, which lets HMRC charge VAT on the full selling price.
Need to add or strip VAT on a price or an invoice? Our free calculator handles any rate in a couple of clicks.
Open the VAT calculatorFrequently asked questions
You pay one sixth, or 16.67 percent, of your margin. The margin is the selling price less the purchase price. So a £900 margin means £150 of VAT, and a sale that makes no profit means no VAT at all.
Used goods, works of art, antiques and collectors’ items all qualify, as long as you bought them without being charged VAT you could reclaim. That usually means buying from a private individual, a business not registered for VAT, or a dealer using the margin scheme.
No. If you were charged VAT that you could reclaim, the item is outside the scheme. You reclaim that VAT as normal and then charge VAT on the full selling price when you sell it, rather than on the margin.
There is no margin, so there is no VAT to pay on that sale. Under the standard scheme you cannot use that loss to reduce the VAT on other items. The global accounting scheme is different and does let a period’s purchases and sales be netted together.
No. You must not show VAT as a separate amount, and the buyer cannot reclaim any VAT on the purchase. The invoice shows the total price and a short reference such as margin scheme second hand goods.
You pay one sixth of the difference between what you paid for the vehicle and what you sold it for. Repair and reconditioning costs cannot be added to the purchase price, and a car bought on a VAT invoice cannot go through the scheme.
No. Since 1 May 2023 the second hand motor vehicle payment scheme replaced it for vehicles bought in Great Britain and moved to Northern Ireland for resale. You claim a VAT related payment of one sixth of the purchase price instead.
Almost always, if you buy from private sellers, since you have no VAT to reclaim on the purchase and the scheme taxes only your margin. The main exception is selling to a VAT registered buyer who could have reclaimed the VAT under normal accounting.
Sources: HMRC, Using a VAT margin scheme · HMRC, Keeping records for VAT margin schemes · HMRC, Using the global accounting VAT margin scheme · HMRC, Using the VAT margin scheme for second hand vehicles · HMRC, Claim a VAT related payment for second hand vehicles moved to Northern Ireland · HMRC, Using the auctioneers’ VAT margin scheme · GOV.UK, VAT registration thresholds and VAT rates. Figures reflect the latest published HMRC guidance as at August 2026.