VAT margin schemes
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1. Overview
VAT 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.
You can choose to use a margin scheme when you sell:
- second-hand goods
- works of art
- antiques
- collectors’ items
You cannot use a margin scheme for:
- any item you bought for which you were charged VAT
- precious metals
- investment gold
- precious stones
Example
You buy a work of art for £1,500 and sell it for £2,000. Using a margin scheme, you pay VAT at 16.67% (one-sixth) on the difference: £500. This means you’ll pay £83.33.
How to start
You can start using a margin scheme at any time by keeping the correct records, and then reporting it on your VAT return. You do not have to register.
You’ll have to pay VAT on the full selling price of each item if you do not meet all the scheme’s requirements.
Exceptions
There are different rules if you’re selling:
- second-hand vehicles
- horses and ponies
- houseboats and caravans
- items that have been pawned
- high volume, low price items - you can use the Global Accounting Scheme, a simplified version of the VAT margin scheme
There are also different rules:
Check if you can use a VAT margin scheme if you import from, or export to, countries outside the UK.
2. Eligibility
You can only use a margin scheme for:
- second-hand goods
- works of art
- antiques and collectors’ items
Second-hand goods
Goods that can still be used, or which could be used after repair.
Works of art
Most items normally described as ‘works of art’ are eligible. There are some exceptions, for example technical drawings, scenery for theatres and hand-decorated manufactured items.
Antiques and collectors’ items
Antiques are goods that are over 100 years old. Collectors’ items are stamps, coins and currency and other pieces of scientific, historical or archaeological interest. Not all items that can be collected are eligible for a margin scheme.
There are special rules for works of art, antiques or collectors’ items imported from outside the European Economic Area (EEA) and works of art bought directly from the creator or their heirs.
Margin schemes and standard VAT
If some of the items you buy and sell are not eligible for a margin scheme, you pay and charge VAT for those items in the normal way.
You cannot include any of the following in your calculations when using a margin scheme:
- business overheads
- repairs
- parts or accessories
Instead, reclaim these on your VAT return in the normal way.
Contact HM Revenue and Customs (HMRC) if you’re not sure about a particular item.
3. Keeping records
You must keep the usual VAT records when you use a margin scheme.
You must also keep:
- a stockbook that tracks each item sold under the margin scheme individually
- copies of purchase and sales invoices for all items
Stockbook
You must record certain information for each item you buy and sell that you want to use a margin scheme for.
| Purchases | Sales |
|---|---|
| Stock number in numerical sequence | - |
| Date of purchase | Date of sale |
| Purchase invoice number (unless you made out the purchase invoice yourself) | Sales invoice number |
| Purchase price | Selling price, or method of disposal |
| Name of seller | Name of buyer |
| Description of the item | - |
| - | Margin on sale (sales price less purchase price) |
| - | VAT due (16.67% or one-sixth) |
You must keep VAT records for 6 years. You have to keep records until you sell the item for any stock you bought more than 6 years ago that you plan to sell under the margin scheme.
Invoices
To use the margin scheme, you must have invoices for each item that meet the VAT margin scheme requirements.
The margin scheme invoice requirements are not the same as the general VAT invoice requirements.
You must have:
- an invoice from the seller when you bought the item
- a copy of the invoice you gave to the buyer when you sold the item
Buying
When you buy something you plan to sell under a margin scheme, you must get an invoice from the seller that includes:
- date
- seller’s name and address
- your name and address, or that of your business
- the item’s unique stockbook number (if you bought the item from another VAT-registered business)
- invoice number (unless you made out the purchase invoice yourself)
- item description
- total price - you must not add any other costs to this price
- if you bought the item from another VAT-registered business, any of the following: ‘margin scheme - second hand goods’, ‘margin scheme - works of art’ or ‘margin scheme - collectors’ items and antiques’
Selling
When you sell something you plan to claim for under a VAT margin scheme, you must give the buyer an invoice that includes:
- date
- your name, address and VAT registration number
- the buyer’s name and address, or that of their business
- the item’s unique stock book number
- invoice number
- item description
- total price - you must not show VAT separately
- any of the following: ‘margin scheme - second hand goods’, ‘margin scheme - works of art’ or ‘margin scheme - collectors’ items and antiques’
There are special rules for using the margin scheme for imports and exports outside the UK. Find out more about the rules.
4. VAT return
You must show any goods you bought or sold using a margin scheme on your VAT return.
Filling in your VAT return
| Box on the VAT return form | What to fill in |
|---|---|
| Box 1 | Include the output tax due on all eligible goods sold in the period covered by the return |
| Box 6 | Include the full selling price of all eligible goods sold in the period, less any VAT due on the margin |
| Box 7 | Include the full purchase price of eligible goods bought in the period |
You do not have to include margin scheme purchases or sales in boxes 8 and 9 of your VAT return.