The VAT Margin Scheme lets you pay VAT on the margin you make on an item rather than on its full selling price. The margin is the difference between what you paid for the goods and what you sold them for, and you pay an effective VAT rate of 16.67%, one sixth, on that margin. It suits dealers in second hand goods, works of art, antiques and collectors’ items, and it can cut the VAT you owe considerably.
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If you buy and sell used goods, you often cannot recover any VAT when you buy stock, because you tend to buy from private individuals or other dealers who did not charge VAT. Under normal rules you would still have to charge VAT on the full price when you sell, which would be unfair. The margin scheme fixes this by taxing only your profit. This guide explains how the scheme works, who can use it, what records you must keep, and where it does not apply.
How does the VAT Margin Scheme work?
Instead of charging VAT on the whole sale price, you charge VAT on the margin only. The margin is the difference between the price you paid for an item and the price you sold it for. The effective rate is 16.67%, which is one sixth of the margin.
Say you buy a painting for £1,500 and sell it for £2,000. Your margin is £500. The VAT due is one sixth of £500, which is £83.33. You keep the rest of the margin. If you had used standard VAT accounting on the full £2,000, the sums would look very different, so for the right kind of business the saving is real.
One condition sits at the heart of the scheme: because you did not reclaim VAT when you bought the stock, you cannot reclaim any VAT on the purchase price of goods you sell under the scheme. You also do not show VAT separately on your sales invoice. The margin scheme is optional, so you can choose it item by item where the goods qualify.
Which goods are eligible?
You can use the margin scheme when you sell:
- second hand goods
- works of art
- antiques
- collectors’ items
These are goods you typically buy without any VAT to reclaim, which is exactly the situation the scheme is designed for. If the goods qualify and you hold the right records, the choice to use the scheme is yours.
What is excluded from the scheme?
The scheme does not cover everything. You cannot use it for:
- any item you bought and reclaimed VAT on
- precious metals
- investment gold
- precious stones
The logic is straightforward. If you already recovered VAT when you bought something, you must account for VAT on the full selling price in the normal way rather than on the margin. Precious metals, investment gold and precious stones have their own VAT treatment and sit outside the scheme entirely.
What records do you need to keep?
Record keeping is strict, and HMRC expect it to be right. On top of your usual VAT records you must keep a stock book that tracks every item individually, along with margin scheme invoices for both purchases and sales.
Your stock book should give each item a stock number in sequence, and record the date, the invoice number, the price, the other party’s name and a description of the goods. For sales you also record the margin and the VAT due at 16.67%. Purchase and sales invoices carry the item’s unique stock number, the description, the total price and the fact that the margin scheme applies. Your sales invoice must not show VAT as a separate figure.
Keep these records for at least six years. If stock is still unsold after six years, keep the purchase records until the item finally sells. Good record keeping is what proves your right to use the scheme, so treat the stock book as essential rather than optional.
What is the Global Accounting Scheme?
The Global Accounting Scheme is a simplified version of the margin scheme built for dealers who handle a high volume of low value items, where tracking every single item through a stock book would be impractical. Instead of working out the margin item by item, you work out your total margin across all eligible purchases and sales in a period. You still cannot reclaim VAT on the stock and you still keep records, but the item by item detail is relaxed. It suits bulk sellers such as those dealing in job lots of small collectibles.
How does this fit with other VAT schemes?
The margin scheme sits alongside the other VAT choices open to a small business. Once your taxable turnover reaches the VAT registration threshold you must register, and from there you can consider how you account for VAT. Some businesses combine the margin scheme with everyday VAT accounting on their other sales. Others compare it against the VAT Flat Rate Scheme, the VAT Cash Accounting Scheme or the VAT Annual Accounting Scheme to see which mix keeps their VAT simplest and lowest. The right answer depends on what you sell and how you buy your stock.
Getting the margin scheme right
The margin scheme can save you a lot of VAT, but the record keeping is where businesses come unstuck. A missing stock book entry or an invoice that shows VAT separately can put a whole claim at risk if HMRC review your return. Careful bookkeeping and a good accountant keep you on the right side of the rules.
If HMRC do open an enquiry, the accountancy fees alone can run into thousands. Solar Protect tax investigation insurance covers up to £100,000 of your accountant’s fees with no excess, so a review does not become an expensive one. Get a quote to protect your business today. For more on VAT and small business tax, see our full accountancy and tax guide.
Reviewed by Matthew Bartlett, Director, Solar Protect. This guide is general information, not personalised tax or financial advice. Figures are correct for the 2025/26 and 2026/27 UK tax years at the time of writing.