Second-hand VAT margin scheme: start with eligible purchase evidence
A UK VAT-registered dealer buys a used cabinet from a private seller for £600, pays £120 plus VAT for repairs and sells it for £960. It is tempting to deduct the repairs before calculating VAT, but the second-hand margin scheme does not work that way. The dealer first needs item-level evidence that the cabinet is eligible. VAT is then worked out on the difference between purchase and selling prices, before repairs and overheads.
Check the item before the margin
Ordinary eligible second-hand goods are usable as they stand or after repair. The scheme is optional and taxes the difference between purchase and selling prices. If VAT was charged on the purchase, the item is generally ineligible for the ordinary scheme. Items outside the scheme follow normal VAT treatment.
Repairs, parts and overheads do not reduce the margin. Input VAT on those costs is considered separately under the normal rules, so it should not be assumed to be recoverable in every case.
These points concern ordinary goods bought and sold domestically in the UK. Vehicles, cross-border trade, Northern Ireland and EU movements, auctioneers and Global Accounting have separate rules.
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Build the purchase and sale trail
When buying from a private individual or unregistered business, the dealer makes out the purchase invoice. The total must be the actual price, with no extra costs added.
The sales invoice shows the total price, no separate VAT and the applicable margin scheme wording. The margin belongs in the dealer's calculation records and is not a VAT line charged to the customer.
- Purchase invoice: seller details, the dealer's business name, address and VAT number, invoice number, date, stock number, item description and actual total price.
- Stockbook: an individual entry for each item with a unique stock number, seller, item, dates, invoice numbers and prices.
- Calculation: a cross-reference from the invoices and stock entry to the margin and VAT due.
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A hypothetical cabinet sale
In this hypothetical, the cabinet is an eligible used item bought domestically with a compliant purchase invoice. The repair invoice is £120 plus £24 VAT, the dealer can fully recover that VAT under normal rules and no special scheme applies. At the 20% rate, VAT is one sixth of a positive margin, not 20% of it.
Box 6 takes the full selling price less margin VAT, so the figure here is £900, not the net margin of £300. The £360 margin and the £180 profit are also different measures, and only the margin sets the VAT.
| Measure | Calculation | Result |
|---|---|---|
| Scheme margin | £960 - £600 | £360 |
| Margin VAT, box 1 | £360 ÷ 6 | £60 |
| Sale in box 6 | £960 - £60 | £900 |
| Purchase in box 7 | Full purchase price, in the purchase period | £600 |
| Repair input VAT | Considered separately | £24 |
| Profit after VAT and repairs, before overheads | £900 - £600 - £120 | £180 |
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Before using the scheme on an item
When an individual sale makes no profit, no margin VAT is payable on that sale. Under ordinary item-by-item accounting, that loss should not be treated as an offset against the margin on other items.
Missing the scheme requirements can mean VAT on the full selling price. On the cabinet, one sixth of £960 would be £160 rather than £60. Margin records are normally kept for six years, but records for older unsold stock must be kept until the item is sold.
Before each sale, match the stock number to the purchase evidence. If that link is missing, resolve it before choosing the scheme for that item.
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