If you resell pre-owned items online, VAT can feel brutal. You buy a job lot of clothes, trainers or vintage cameras from people who are not VAT registered, so you can't reclaim any VAT on what you paid. Then HMRC wants 20% of the full price you sell at. That maths can wipe out a healthy margin.
The VAT margin scheme fixes exactly this problem. It lets you charge VAT on your profit, not on the whole selling price. For second-hand goods bought from private individuals, that's often a big saving.
This guide explains how the scheme works, who can use it, the records you need, and a worked example with current figures. It's written for UK resellers on platforms like Vinted, eBay, Depop and your own Shopify store.
What is the VAT margin scheme?
The VAT margin scheme taxes the difference between what you paid for an item and what you sold it for, rather than the full selling price. HMRC describes the margin as that difference, and you pay VAT only on it.
That matters most when you buy stock from someone who can't give you a VAT invoice, which is the norm for second-hand goods. A private seller on Vinted isn't VAT registered, so there's no input VAT for you to reclaim. Under normal VAT rules you'd still owe output VAT on the full resale price, with nothing to offset it. The margin scheme stops that double hit.
A few ground rules to know up front:
- It's optional. You choose to use it item by item, alongside normal VAT for anything that doesn't qualify.
- You can't show VAT separately on your sales invoices for margin-scheme goods, and your buyer can't reclaim it.
- You still need to be VAT registered to use it. The scheme is about how you account for VAT, not whether you're registered.
If your turnover is approaching the VAT registration threshold of £90,000 (current, from 1 April 2024), it's worth understanding this scheme before you register, because it changes the sums considerably.
How is VAT worked out under the margin scheme?
The VAT due is one-sixth (16.67%) of your margin. That fraction comes from the 20% standard VAT rate (current): the margin you receive is treated as VAT-inclusive, and 20/120 simplifies to one-sixth.
The formula is simple:
- Take the price you sold the item for.
- Subtract the price you paid for it. That's your margin.
- If the margin is positive, multiply it by one-sixth. That's the VAT you owe.
You can't deduct your other costs from the margin. Things like repairs, parts, postage, packaging and general overheads are not part of the margin calculation. You account for VAT on those separately under the normal rules where applicable.
If you sell an item for less than you paid, there's no VAT to pay on it. But you also can't use that loss to reduce the VAT on your profitable sales under the standard margin scheme. Each item stands alone.
Worked example: margin scheme vs standard VAT
Illustrative example. Priya runs a VAT-registered second-hand fashion business. She buys a designer coat from a private seller for £180 and resells it for £300. All figures use the 20% standard VAT rate (current).
Here's how the two approaches compare on that single sale.
| Step | Standard VAT | Margin scheme |
|---|---|---|
| Purchase price (from non-VAT seller) | £180.00 | £180.00 |
| Selling price | £300.00 | £300.00 |
| VAT base | £300.00 (full price) | £120.00 (the margin) |
| VAT due (one-sixth of base) | £50.00 | £20.00 |
| Input VAT reclaimable | £0.00 | n/a |
| VAT cost to Priya | £50.00 | £20.00 |
Under standard VAT, Priya owes £50.00 (one-sixth of £300) and has nothing to reclaim, because the private seller charged her no VAT. Under the margin scheme she owes £20.00 (one-sixth of the £120 margin). That's £30.00 saved on one coat.
Scale that across hundreds of items a month and the margin scheme can be the difference between a viable resale business and one that barely breaks even. The cash you keep is real working capital you can put back into stock. Good bookkeeping is what makes the saving stick, because the scheme lives or dies on your records.
Which goods qualify for the scheme?
You can use the margin scheme for second-hand goods, works of art, antiques and collectors' items. HMRC defines second-hand goods as goods that can still be used, or which could be used after repair, so most resale stock qualifies.
You cannot use the scheme for:
- Items you bought with VAT charged that you were able to reclaim. The whole point is unrecoverable input VAT, so if you reclaimed it, normal rules apply.
- Investment gold, precious metals and precious stones.
- Anything that isn't actually second-hand, a work of art, an antique or a collectors' item.
There are also items you can never fold into the margin, even when the goods themselves qualify: business overheads, repairs, and parts or accessories you buy in. Those go through normal VAT accounting.
A practical point for online resellers: if your stock is a mix of qualifying second-hand goods and brand-new items you buy from VAT-registered wholesalers, you handle each category separately. The margin scheme covers the genuine pre-owned stock, and standard VAT covers the new. If you sell across ecommerce platforms and marketplaces, splitting these cleanly in your accounts from day one saves a lot of pain at return time.
What records do you need to keep?
The margin scheme is record-driven. If you can't evidence the purchase price of an item, you can't use the scheme for it, and you'd owe VAT on the full selling price instead. HMRC is strict on this.
You need to keep:
- A stock book that tracks each margin-scheme item individually. For each purchase, record the stock number, purchase date, purchase invoice number, purchase price, the seller's name and a description. For each sale, record the stock number, sale date, sales invoice number, selling price (or how you disposed of it), the buyer's name, your margin calculation and the VAT due.
- Purchase invoices for every item. When you buy from a private individual, you make out the purchase invoice yourself, and both you and the seller keep a copy.
- Sales invoices for every item, showing the total price with no separate VAT figure and the right margin-scheme reference.
Keep these records for six years. If you bought an item more than six years ago and still hold it in stock, keep the records until you sell it.
For a busy Vinted or eBay shop turning over hundreds of low-value items, item-by-item record keeping is the real workload. If you're a Vinted seller crossing into VAT territory, this is where it pays to get a system in place early rather than reconstruct it later.
What is the Global Accounting Scheme?
The Global Accounting Scheme is a simplified version of the margin scheme built for exactly this situation: high volumes of low-value second-hand items where tracking every single one individually is impractical.
Instead of working out a margin per item, you work out VAT on the difference between your total eligible purchases and your total eligible sales in a VAT period. You still pay one-sixth of that overall margin.
The key restriction is the value cap. You cannot use Global Accounting for any individual item with a purchase price over £500. Items costing more than £500 go through the standard item-by-item margin scheme instead. There are narrow exceptions, for example where you buy something for more than £500, break it into components each worth less, and sell those components separately.
For a reseller shifting bulk lots of clothing, accessories or small collectables, Global Accounting can dramatically cut admin. The trade-off is that you can't reclaim a "loss" on the scheme as a refund. If your total purchases in a period exceed your total sales, you carry the negative margin forward, you don't get VAT back.
When does the margin scheme not help?
The scheme isn't always the right answer. It doesn't help, or actively hurts, when:
- You bought the stock with reclaimable VAT. If you bought new goods from a VAT-registered supplier and reclaimed the input VAT, you can't then use the margin scheme on the sale.
- Your buyers are VAT-registered businesses who want to reclaim VAT. Under the margin scheme they can't, because you don't show VAT separately. For business customers, standard VAT accounting may suit them better.
- Your margins are thin and your costs are high. The scheme only taxes the buy-sell margin, but you can't deduct postage, repairs or fees from it. If most of your spend is on those costs rather than stock, the headline saving is smaller than it looks.
Choosing between the margin scheme, Global Accounting and standard VAT is a genuine planning decision, and it interacts with whether you should be registered at all. This is the kind of thing our tax advisory team works through with resellers before they commit to one method.
Want to know whether the margin scheme will actually save you money on your stock mix? Book a free 20-minute call with a Zmartly accountant and we'll run the numbers on your business. Visit zmartly.co.uk/contact to get started.
Frequently asked questions
Can I use the VAT margin scheme on Vinted and eBay sales?
Yes, if you're VAT registered and selling genuine second-hand goods. The platform doesn't change your eligibility. What matters is that the items qualify as second-hand and that you keep the required purchase and sales records for each item. Marketplace fees and postage can't be deducted from the margin.
Do I have to be VAT registered to use the margin scheme?
Yes. The margin scheme is a way of accounting for VAT, so you must already be VAT registered to use it. The current VAT registration threshold is £90,000 of taxable turnover (from 1 April 2024). Below that you can register voluntarily if it makes sense for your business.
How much VAT do I pay under the margin scheme?
You pay one-sixth (16.67%) of your margin, which is the selling price minus the purchase price. This comes from the 20% standard VAT rate applied to a VAT-inclusive margin. If you sell an item for the same or less than you paid, there's no VAT on that item under the standard margin scheme.
Can I reclaim VAT on items I buy to resell under the scheme?
No. The margin scheme is designed for goods bought without reclaimable VAT, typically from private individuals. If you did buy with reclaimable VAT, you use normal VAT accounting on that item instead, not the margin scheme.
What's the difference between the margin scheme and Global Accounting?
The standard margin scheme works out VAT item by item. Global Accounting works out VAT on your total purchases against your total sales across a VAT period, which suits high volumes of low-value goods. Global Accounting can't be used for any item with a purchase price over £500.
