You buy preloved clothing in bulk, list it on Vinted, and the sales are starting to add up. Now you're worried about VAT, because most of your stock came from people who never charged you VAT in the first place. Paying 20% on the full price you sell at would wipe out your profit.
That's exactly the problem the VAT margin scheme is built to solve. It lets you pay VAT only on your profit margin, not the whole selling price. But there's a catch that trips up a lot of resellers: the scheme does not change when you have to register for VAT.
This guide explains how the margin scheme works for second-hand goods, exactly when a reseller must register, and how to count your turnover correctly. It's written for sole traders and small businesses reselling preloved items on platforms like Vinted, eBay and Depop. If you just sell your own old wardrobe now and then, you almost certainly aren't trading at all, and we cover that too.
When must a second-hand reseller register for VAT?
You must register for VAT once your VAT taxable turnover goes over £90,000 in any rolling 12-month period (the threshold from 1 April 2024), or if you expect to go over £90,000 in the next 30 days alone. The margin scheme does not raise that threshold, and turnover is measured on your full selling prices, not just your margins.
There are two separate tests, and you need to watch both.
The backward-looking test. At the end of every month, add up your VAT taxable turnover for the previous 12 months. If that rolling total has gone over £90,000, you must register within 30 days of the end of the month you went over. Your registration then takes effect from the first day of the second month after you crossed the threshold.
The forward-looking test. If at any point you realise your taxable turnover will go over £90,000 in the next 30 days on its own (say you land a big bulk order), you must register by the end of that 30-day period. Registration takes effect from the date you realised, not the date the money actually comes in.
In practice, the mistake we see most often with resellers is treating the threshold as an annual figure that resets on 6 April. It doesn't. It's a rolling 12-month window that you re-test every single month.
Are you actually trading, or just clearing out your wardrobe?
Before any of this matters, you need to know whether you're trading at all. Selling your own unwanted possessions is not trading, and you probably won't owe Income Tax on it. As gov.uk puts it, "if you're selling personal possessions you probably do not have to pay Income Tax on these."
Buying stock specifically to sell on at a profit is a different story. HMRC looks at the "badges of trade" to decide: how often you sell, whether you bought items intending to resell them, whether you repair or alter them first, and how businesslike the activity is.
If you are trading, the £1,000 trading allowance is your first checkpoint for Income Tax. Gov.uk states: "If your total income is more than the £1,000 trading allowance for the tax year (6 April to 5 April), you'll need to tell us about it." That allowance is about Income Tax and is completely separate from VAT, which only bites at £90,000.
One more point on personal items: if you sell a single personal possession for more than £6,000, Capital Gains Tax can apply, even though it isn't trading income. For most Vinted clothing sales that won't arise, but it's worth knowing if you sell a designer handbag or a watch.
If reselling preloved fashion is now a genuine business for you, our guide to accounting for Vinted sellers walks through the wider tax picture.
What is the VAT margin scheme for second-hand goods?
The VAT margin scheme lets you pay VAT only on the difference between what you paid for an item and what you sold it for, instead of on the full selling price. Gov.uk describes it plainly: the scheme taxes "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 that margin. That one-sixth is simply the VAT fraction of the standard 20% rate, because the margin is treated as VAT-inclusive.
The scheme is optional, and it covers:
- second-hand goods
- works of art
- antiques
- collectors' items
For a Vinted reseller, "second-hand goods" is the relevant category, and preloved clothing fits squarely within it.
There's a fundamental condition you must meet. You can only use the margin scheme on goods where you could not reclaim VAT when you bought them, typically because you bought from a private individual or another margin-scheme dealer who didn't charge you VAT. Gov.uk is explicit: "If you have reclaimed, or were entitled to reclaim VAT on an item you've purchased, you cannot use a Margin Scheme when you sell it." So if you bought new stock from a VAT-registered wholesaler with VAT shown on the invoice, those items stay on standard VAT, not the margin scheme.
Precious metals, investment gold and precious stones are excluded from the scheme entirely.
Does the margin scheme lower the registration threshold?
No, and this is the part that costs resellers the most. The margin scheme changes how much VAT you pay, not the turnover figure that decides whether you must register.
For the registration test, your taxable turnover is based on the full selling price of your margin scheme goods, not the margin. HMRC's VAT Notice 718 confirms the full selling price is what runs through the scheme, and it's that full sale value that counts toward the £90,000 threshold.
So a reseller can be paying only a sliver of VAT on each item once registered, while still being pushed over the registration threshold by the total value of everything they sell. The two numbers are doing two different jobs:
| Figure | What it's based on | What it's used for |
|---|---|---|
| Taxable turnover for registration | Full selling price of all sales | Deciding if you cross £90,000 and must register |
| VAT you actually pay (margin scheme) | Your margin only, at 16.67% | The VAT due on each margin scheme sale |
Get the first one wrong and you can register late, which means HMRC can charge a failure-to-notify penalty plus the VAT you should have collected. The margin scheme is generous on what you pay; it is not a shield against registering on time.
Worked example: a Vinted reseller approaching the threshold
Illustrative example. Aisha resells preloved designer clothing she buys from car-boot sales and private sellers, none of whom charge her VAT. In the 12 months to 31 March 2026, her total sales (full selling prices) come to £92,000. Her stock cost her £55,000, so her gross margin is £37,000.
Because her taxable turnover is measured on the full £92,000 selling price, she has crossed the £90,000 threshold (the figure that applies from 1 April 2024). She must register, even though her margins are modest.
Now look at what she actually pays once registered, using the margin scheme on a single representative batch.
Aisha buys a bundle of items for £600 from a private seller (no VAT charged) and sells the bundle for £900.
- Selling price: £900
- Purchase price: £600
- Margin: £900 minus £600 = £300
- VAT due: £300 x 16.67% (one-sixth) = £50.00
So she pays £50 of VAT on a £300 margin. Compare that with standard VAT, where she'd owe £150 (£900 x 1/6) with nothing to reclaim on the purchase, because no VAT was charged to her. On this batch the margin scheme saves her £100. Across a year of similar batches, that difference is the whole reason the scheme exists.
The lesson: the £92,000 figure forced Aisha to register, but the margin scheme kept her VAT bill proportionate to her real profit.
What records does the margin scheme require?
The margin scheme trades a lower VAT bill for stricter record-keeping. If your records don't stand up, HMRC can refuse the scheme and charge VAT on your full selling prices instead. VAT Notice 718 sets out three pillars.
A stock book. For every item you must record the stock number, the purchase date, invoice number, price and the seller's name and description, then the sale date, invoice number, buyer and selling price, and finally the margin and the VAT due on it.
Purchase records. When you buy from a private individual you make out the purchase invoice yourself, showing both parties' names and addresses, the date, an invoice number, a description and the total price, with no VAT shown separately.
Sales invoices. These show your name, address and VAT number, the buyer's details, the date, an invoice number, a description and the total price, again with VAT not shown separately, plus a statement that the margin scheme applies.
You must keep these records for at least six years. For a high-volume, low-value reseller, the Global Accounting Scheme is a simpler variation that lets you calculate VAT on your total eligible purchases against total eligible sales for the period, rather than item by item. It can't be used for any single item bought for more than £500, and excludes things like motor vehicles, boats and caravans.
Keeping this straight alongside everything else is where most resellers want a hand. Our tax advisory team can set up your stock book and margin scheme records so they're audit-ready from day one.
How do you report margin scheme sales on the VAT return?
Margin scheme sales go on your normal VAT return, but the boxes work slightly differently from standard sales.
- Box 1 (VAT due on sales): include the VAT calculated on your margins, at one-sixth of each margin.
- Box 6 (total value of sales): include the full selling price of all your margin scheme goods for the period, less the VAT due on the margin.
You do not put margin scheme purchases in your input VAT (Box 4), because you didn't pay any VAT on them to reclaim. That's the whole basis of the scheme.
All VAT-registered businesses must keep digital records and file through Making Tax Digital compatible software, so your margin scheme calculations need to feed into MTD-ready bookkeeping rather than a paper ledger you copy over by hand.
Does Vinted reporting my sales to HMRC mean I owe tax?
Vinted and other platforms now share seller data with HMRC under the UK's digital platform reporting rules, but being reported is not the same as owing tax. Gov.uk states directly: "A platform reporting your details to HMRC does not automatically mean you owe tax."
Platforms report annually, by 31 January after the calendar year. They don't have to report a seller's details if that seller made fewer than 30 sales of goods and received under 2,000 euros (around £1,700) in the year. Cross either of those and your information is likely shared.
What you owe still depends on whether you're trading and, separately, whether your turnover has crossed the VAT threshold. The reporting just means HMRC can see the activity, so getting your registration and records right matters more than ever.
Frequently asked questions
Do I have to register for the margin scheme separately?
No. There's no separate registration for the margin scheme itself. You opt in simply by meeting the conditions, keeping the required records and reporting eligible sales correctly on your VAT return. You do, however, have to register for VAT in the normal way once your taxable turnover crosses £90,000.
Does the margin scheme count my profit or my sales toward the £90,000 threshold?
Your sales. The VAT registration threshold is tested on your full selling prices, not your margins. You can have slim margins and still be required to register because the total value of what you sell has gone over £90,000 in a rolling 12-month period.
Can I use the margin scheme if I bought stock from a VAT-registered supplier?
Only if no VAT was charged to you, for example because they also used the margin scheme. If your supplier showed VAT separately on the invoice and you could reclaim it, those goods can't go through the margin scheme. They follow standard VAT rules instead.
I just sell my own old clothes on Vinted. Do I need to worry about any of this?
Almost certainly not. Selling your own unwanted personal possessions is not trading, so there's normally no Income Tax and no VAT to think about. The margin scheme, the trading allowance and the VAT threshold only come into play once you're buying to resell at a profit, in other words running a business.
What VAT rate applies under the margin scheme?
You pay VAT at 16.67%, which is one-sixth, on your margin. That's the VAT fraction of the standard 20% rate, applied because the margin is treated as already including VAT.
Key takeaways
- The £90,000 VAT registration threshold (from 1 April 2024) is tested on your full selling prices over a rolling 12 months, not on your margins.
- The margin scheme lets you pay VAT at 16.67% on profit only, but it does not raise or change when you must register.
- You can only use it on goods bought without recoverable VAT, and you must keep a stock book plus compliant purchase and sales records.
- Selling your own personal possessions usually isn't trading at all; the rules above are for genuine resellers.
Worried you're approaching the threshold or unsure whether the margin scheme fits your stock? Book a call with a Zmartly accountant through our tax advisory services and we'll get your VAT position right before HMRC asks.
