The VAT margin scheme, in plain words

In short. VAT is one-sixth of the margin on each eligible item, usually one you bought without being charged VAT. You must be registered for VAT and keep a stock book and the right invoices.

This is not tax advice. It sums up HMRC’s guidance on gov.uk and the law behind it, read on 5 October 2026, with a link to each page. Check your own case with HMRC or an accountant.

Without the scheme, a VAT-registered shop that sells a second-hand phone for £300 owes VAT on the whole £300 (£50 of it), even though no VAT was charged when it bought the phone from a member of the public. The margin scheme puts that right by taxing only the margin.

In HMRC’s words, margin schemes tax the difference between what you paid for an item and what you sold it for, rather than the full selling price. You pay VAT at 16.67% (one-sixth) on the difference (VAT margin schemes, gov.uk).

Is there VAT on second-hand goods?

It depends on who sells them. A private person selling their own things charges no VAT, and neither does a business that is not registered for VAT. A VAT-registered business does charge VAT on most second-hand goods: on the full price under the normal rules, or on the margin if it uses the margin scheme. Some goods are zero rated whether new or second-hand, such as books and children’s clothes (VAT rates on different goods and services).

A business must register for VAT when its taxable turnover for the last 12 months goes over £90,000 (Register for VAT). For a dealer using the margin scheme, the turnover that counts is the full selling price of the goods, not the margin (HMRC manual VATREG02400). A business that is not registered charges no VAT and cannot use the scheme.

How the VAT is worked out

The margin is the selling price minus the buying price. At the standard rate of 20%, the VAT is one-sixth of the margin, because the margin is treated as already including the VAT.

Repairs, parts and overheads do not go into the buying price. You reclaim the VAT on those on your VAT return in the normal way (eligibility).

If an item sells for what you paid or less, there is no margin and so no VAT on that sale: the law defines the margin as the amount (if any) by which the selling price is more than the buying price (VAT Act 1994, section 50A). A loss on one item does not reduce the VAT on another, except under global accounting, below.

Which goods qualify

HMRC: You can only use a margin scheme for: second-hand goods, works of art, antiques and collectors’ items.

• Second-hand goods are goods that can still be used, or which could be used after repair: a phone, a laptop, a sofa or a set of tools, for example.
• Antiques are goods over 100 years old.
• Collectors’ items are stamps, coins and currency, and pieces of scientific, historical or archaeological interest. Not everything people collect counts.
• Works of art qualify, with exceptions such as technical drawings and hand-decorated manufactured items.

The scheme does not cover any item you bought for which you were charged VAT, precious metals, investment gold, precious stones (with two exceptions for works of art, antiques and collectors’ items, below). The law also stops you using the scheme when you hire goods out rather than sell them, and for air guns unless you are registered under the Firearms Act 1968. If you buy gold, silver or jewellery, check with HMRC or an accountant which of your items count before you rely on the scheme.

Cars and other vehicles have their own version of the scheme (second-hand vehicles).

Who you must have bought from

Usually, an item qualifies only if you were not charged VAT on it, or were charged VAT only on a margin. In practice that means you bought it from:

• a member of the public, or a business that is not registered for VAT;
• another dealer selling it under the margin scheme;
• an insurer selling goods it took in settlement of a claim, in the same condition.

Works of art, antiques and collectors’ items have two more routes, each with its own rules: a work of art bought from the artist or their heirs, even if they charged VAT; and a work of art, antique or collectors’ item you imported yourself (imports and the margin scheme). Check HMRC’s rules before you rely on either.

Apart from those two routes, if the seller’s invoice shows VAT separately, the item does not qualify (HMRC manual VATMARG02150). The scheme is also a choice, item by item: you can sell an eligible item outside it, but then you charge VAT on the full price (VATMARG02350).

The records you must keep

There is nothing to apply for. You start using the scheme by keeping the right records and reporting it on your VAT return. But HMRC warns that you’ll have to pay VAT on the full selling price of each item if you do not meet all the scheme’s requirements, so the records matter as much as the sum.

The stock book

A stock book, on paper or on a computer, tracks each item one by one. HMRC’s rules for it have the force of law (VAT Tertiary Legislation: margin schemes). When you buy an item, it shows:

• a unique stock number, in sequence;
• the date of purchase and the purchase invoice number;
• the seller’s name;
• a description of the item;
• the purchase price.

When you sell it, the stock book adds:

• the date of sale and the sales invoice number;
• the buyer’s name;
• a description of the item;
• the selling price, or how the item was disposed of;
• the margin made, and the VAT due on it.

The stock number goes on the purchase invoice and the sales invoice too, so each item can be followed from one to the other.

Buying from a member of the public

You make out the purchase invoice yourself. It shows the seller’s name and address; your name, address and VAT registration number; an invoice number; the date; the stock book number; a description of the item; and the total price paid, with no other costs added.

Selling under the scheme

Your sales invoice shows the date; your name, address and VAT registration number; the buyer’s name and address; the item’s stock number; an invoice number; a description; and the total price. It must not show VAT separately, and the gov.uk guide asks for the words margin scheme - second hand goods (or the version for works of art, or for collectors’ items and antiques) (keeping records).

Keep the records for 6 years. For stock bought more than 6 years ago that you still plan to sell under the scheme, keep them until the item is sold.

Global accounting, for lots of low-value items

Recording every item one by one is a lot of work when you buy and sell in bulk. The global accounting scheme works out VAT on your total eligible sales minus your total eligible purchases for each VAT period, instead of item by item (using the global accounting scheme).

• Each item must have cost £500 or less. A bulk lot can cost more in total, as long as no single item in it was over £500.
• It cannot be used, whatever the price, for aircraft, boats and outboard motors, caravans and motor caravans, horses and ponies, or motor vehicles (except those broken up for scrap).
• The VAT is one-sixth of the period’s total margin. With made-up figures: eligible sales of £4,000 and purchases of £2,800 in a quarter give a margin of £1,200 and VAT of £200.
• If purchases are more than sales, no VAT is due that period, and the negative margin is carried forward and added to the next period’s purchases.
• Its records are kept separate from any other margin scheme records. If HMRC cannot check your margins, VAT is due on the full selling price.

On your VAT return

Box 1 takes the VAT due on the margins. Box 6 takes the full selling price of the eligible goods sold in the period, less the VAT on the margin. Box 7 takes the full purchase price of the eligible goods bought in the period (VAT margin schemes: VAT return).

Northern Ireland

Goods bought in Great Britain can be sold under the scheme in Northern Ireland only if they are works of art, collectors’ items or antiques (Northern Ireland and the EU).

What happened to VAT Notice 718?

HMRC withdrew VAT Notice 718, its old full guide to the margin and global accounting schemes, on 23 December 2021, together with Notice 718/1 for vehicles (the withdrawn notice). The guidance is now on the gov.uk pages linked above, and the record-keeping rules that have the force of law were published in April 2024 as VAT Tertiary Legislation.

What Talstok does, and does not do

Talstok, which we make, does not keep a margin scheme stock book and does not do VAT returns: neither is built. It does not record a purchase from a member of the public either, so the buying side of the stock book stays with you or your accountant.

What it does record is each item and each sale; the margin and the VAT due stay with you. Each second-hand item can be kept one by one, by serial number or IMEI, with its own price, facts and photos. At the till, staff pick the exact item. Online, it sells as itself when the product has Customers choose the exact item switched on. Each sale is recorded with its date and order number. A shop can also publish the prices it pays per grade, with grades that say what each one promises, for a website built on Talstok’s public catalogue to show. The online shop Talstok runs for you does not show buy prices yet. See buying second-hand.