2 min read
The problem the scheme solves
A used-car dealer who buys a car from a private seller pays no input VAT to reclaim. Charging 20% output VAT on the full resale price would be uncompetitive and unfair. The Margin Scheme lets the dealer pay VAT only on the difference between purchase and sale price — the margin.
How the maths works
If you buy an item for £5,000 and sell it for £6,200, your margin is £1,200. The VAT is one-sixth of the margin (because the margin is VAT-inclusive), so £200 goes to HMRC and you keep £1,000. Compare that with £1,033 of VAT on the full £6,200 under standard rules — a meaningful difference on every sale.
What qualifies
The scheme covers second-hand goods, works of art, antiques and collectors' items. There are stricter variants — the Global Accounting Scheme for high-volume, low-value stock, and specific rules for auctioneers and horses. You must keep detailed stock records linking each purchase to each sale.
Record-keeping is the catch
The scheme's benefit depends on flawless records: a stock book, purchase and sales invoices, and a clear margin per item. Get the paperwork wrong and HMRC can charge VAT on the full price. Good bookkeeping is not optional here.
Funding stock
Dealers often tie up cash in inventory that sells slowly. A working-capital facility funds stock purchases and is repaid as items sell.
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Frequently asked questions
Do I charge VAT on the full price under the Margin Scheme?
No — you charge VAT only on your margin (the difference between what you paid and what you sell for). The VAT is one-sixth of that margin, reflecting that the margin figure includes the VAT.
Can I reclaim input VAT on goods in the Margin Scheme?
No. You cannot reclaim VAT on the purchase of margin-scheme goods, which is the trade-off for paying VAT only on the margin. You can still reclaim VAT on overheads like rent and repairs under normal rules.
What records must I keep?
A detailed stock book linking each item's purchase to its sale, plus purchase and sales invoices. Without them HMRC can treat the sale as standard-rated and charge VAT on the full price.
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