What is a VAT margin scheme?
Definition of a VAT margin scheme
A VAT margin scheme is used to tax the difference between the amount that a business pays for certain items and the amount that it later sells those items for. VAT is charged on this difference at a rate of 16.67% (one-sixth).
A business can choose to use a VAT margin scheme when it sells:
- second-hand goods
- works of art and antiques
- collectors’ items
Businesses cannot use VAT margin schemes for:
- any item they buy on which they are charged VAT
- the sale of precious stones or metals, including investment gold
Businesses do not have to apply to use a VAT margin scheme but should keep a record that includes a stockbook and invoices for sales and purchases. The business should then report any goods sold using a margin scheme on its VAT return.
Businesses that sell high volumes of low-priced qualifying items (under £500 per item) may be eligible to use a simplified VAT margin scheme called the Global Accounting Scheme.
You should either speak to an accountant or check with HMRC if you’re in any doubt about using a VAT margin scheme.
Example of a VAT margin scheme in action
A VAT-registered business buys an antique bookcase from a member of the public for £1,000. As the member of the public is not registered for VAT, the business pays no VAT when it purchases the bookcase.
The business sells the bookcase for £1,400 at a later date. Using the VAT margin scheme for antiques, the business pays VAT to HMRC at a rate of 16.67% on the difference of £400. This means that the business owes £66.68 in VAT, which it reports on its next VAT return.