The sum
Margin = selling price − purchase price
VAT due = margin × 1/6 (at the 20% standard rate)
The margin is treated as VAT-inclusive, which is why you take 1/6 of it rather than 20%.
| Bought for | Sold for | Margin | VAT (1/6) | Kept after VAT |
|---|---|---|---|---|
| £4,000 | £5,200 | £1,200 | £200.00 | £1,000.00 |
| £850 | £1,150 | £300 | £50.00 | £250.00 |
| £2,500 | £2,300 | −£200 | £0.00 | −£200.00 |
If you sell at a loss there is no VAT, and you cannot set the loss against the margin on another item.
Who can use it
The scheme covers goods bought without VAT you could reclaim: from the public, from another dealer using the margin scheme, or from a business that could not charge VAT on them. That typically means used cars, motorbikes, caravans, furniture, antiques, works of art, collectors' items and other second-hand goods.
You cannot use it if you were charged VAT on the purchase and could reclaim it.
Records you must keep
- a stock book showing each item bought and sold
- a purchase invoice for each item, even if you write it yourself when buying from the public
- a sales invoice that does not show VAT separately
Your invoice must not show the VAT. If it does, the buyer could reclaim VAT you only paid on the margin.
Questions
Can I include repair costs in the purchase price?
No. Repairs, parts and other costs are not part of the purchase price for the margin calculation. You may be able to reclaim VAT on them separately as normal input tax.
Is the margin scheme optional?
Yes. You can choose to charge VAT on the full selling price instead, item by item.