His Majesty’s Revenue and Customs’ (HMRC) Margin Scheme for value-added tax (VAT) lets VAT-registered businesses selling secondhand goods, antiques, and works of art calculate VAT on their profit margin rather than on the full selling price. That distinction matters because the goods have usually had VAT paid on them once; charging it again on the full resale price would tax the same value twice. In 2024, the UK collectables market was valued at $23.6 billion, which is a lot of potential tax to consider.

Below, we’ll discuss who can use the HMRC VAT Margin Scheme, what records HMRC expects you to keep, and the mistakes that can trip businesses up.

Highlights

• Under the Margin Scheme, VAT isn’t charged on the full selling price. The tax is calculated only on the difference between what you paid for an item and what you sold it for.

• Margin Scheme invoices cannot show a separate VAT figure and must include a specific HMRC-required statement.

• HMRC expects a stockbook linking every eligible purchase to its corresponding sale, plus purchase documentation that proves each item was acquired without VAT.

What is the VAT Margin Scheme?

Under standard VAT rules, a VAT-registered business charges the tax on the full selling price of goods. The Margin Scheme introduces VAT charges based on profit margins.

These three variants exist under HMRC rules:

• The standard Margin Scheme: This requires per-item margin tracking and is widely used. Every eligible purchase and sale is recorded individually, and VAT is calculated per item.

• The Global Accounting Scheme: This is built for high-volume, low-price dealers who can’t practically track individual margins. You calculate a single margin across all eligible stock bought and sold in an accounting period, which is useful for businesses moving large quantities of low-value goods such as secondhand clothing or books.

• The Auctioneers’ Scheme: This applies to auction houses selling eligible secondhand goods on behalf of private sellers.

Who can use the VAT Margin Scheme?

Common users of the VAT Margin Scheme include used car dealers, antique and vintage furniture dealers, art galleries selling on behalf of private collectors, secondhand electronics retailers, and book or record shops.

If a supplier charged you VAT and gave you a VAT invoice, that item is ineligible for the Margin Scheme. Instead, you’d reclaim the input VAT through normal VAT accounting. The defining criterion of the VAT Margin Scheme is that you bought the item without a VAT invoice. Because of this, new goods don’t fall under the scheme, nor do property, financial instruments, or precious metals. Secondhand jewelry containing precious metals can qualify under specific conditions.

You opt in to the Margin Scheme by applying the scheme’s rules to eligible transactions and maintaining the required records; in many cases, there’s no application process or HMRC sign-off needed.

How does the VAT Margin Scheme affect invoicing?

Invoicing is where the scheme diverges more sharply from standard VAT practice and where mistakes are common. When you sell goods under the Margin Scheme, you cannot issue a standard VAT invoice. Every Margin Scheme invoice must include an HMRC-prescribed statement identifying the goods category (for example, “margin scheme—secondhand goods,” or the equivalent for works of art or antiques). Without this, the invoice doesn’t meet HMRC’s requirements.

Always include your business name, address, and VAT registration number, the invoice date, a unique invoice number, a description and quantity of goods, the total selling price, and the customer’s name and address.

A Margin Scheme invoice should never include a separate VAT figure, a VAT amount line, or anything that implies the customer can reclaim VAT on the transaction.

How do you calculate VAT under the Margin Scheme?

Businesses pay VAT at 16.67% (one-sixth) under the Margin Scheme. The calculation is straightforward, but the method differs depending on which variant of the scheme you’re using.

Here’s how each scheme is calculated:

Standard VAT Margin Scheme

1. Calculate the gross margin per item: selling price minus purchase price. If the result is negative, no VAT is due on that item.

2. Calculate VAT due by dividing the gross margin by 6. For example, a £120 margin produces £20 VAT due.

3. Report this figure to the HMRC.

VAT due is calculated the same way under the Auctioneers’ Scheme. A loss on one item cannot offset VAT owed on another, and a loss-making sale still requires a full stockbook entry (report zero VAT). Recording the transaction—and the reasons why no VAT was due—is important for demonstrating compliance if HMRC inspects your records.

Global Accounting Scheme

1. Subtract the total purchase price of all eligible goods bought in a period from the total selling price of all eligible goods sold in the same period.

2. Calculate VAT on that figure at 16.67%.

Under the Global Accounting Scheme, losses on individual items are absorbed into the global margin. A bad sale can reduce your overall VAT liability in a way that’s not possible with per-item accounting.

If total purchases exceed total sales in a period, the resulting negative margin is carried forward and offset against the following period’s margin, reducing the VAT due in that period. Note that this carry-forward can only be offset against the next Global Accounting margin; it cannot be applied to any other VAT figure or record. If the overall period margin is positive, any excess of purchases over sales within that figure is similarly carried into the next period as a reduced purchase cost.

What are the recordkeeping requirements for Margin Scheme transactions?

HMRC’s requirements with the Margin Scheme are more granular than those for standard VAT, and they vary by the type of goods involved. Every eligible item needs a purchase invoice or record showing the item description, purchase price, date, and the seller’s name and address. If you can’t demonstrate that the item was acquired without VAT, HMRC can require you to account for VAT on the full selling price instead of just the margin.

Every sale needs an invoice that meets the requirements covered in the invoicing section above, including the Margin Scheme statement and the absence of a separate VAT figure. The stockbook links each purchase record to its corresponding sale record. That stockbook must be complete, accurate, and auditable; HMRC can request it during an inspection, and it must reconcile with your invoices.

You must also retain the original purchase document (e.g., V5C logbook details, purchase invoice, auction purchase form), and your stockbook entries must clearly demonstrate that no VAT was charged on the original purchase. You’re required to keep any documentation for six years, in line with standard VAT recordkeeping rules. Digital records are acceptable and increasingly the norm. Whether paper or digital, records must be complete and traceable.

What are common mistakes to avoid when using the VAT Margin Scheme?

Many errors with the Margin Scheme come down to two things: misunderstanding which transactions are eligible and letting recordkeeping slip. Here are some common errors:

Issuing standard VAT invoices for Margin Scheme sales

If you show VAT separately on a Margin Scheme invoice, your customer might attempt to reclaim it, and HMRC will challenge both parties. You’ll struggle to defend your Margin Scheme VAT calculation if your invoices imply you charged standard-rate VAT.

Applying the scheme to ineligible purchases

If you bought the item with a VAT invoice and reclaimed input VAT, it can’t go through the Margin Scheme. Using the scheme in that situation means paying VAT at a reduced effective rate, which HMRC treats as an error at minimum and potential fraud at worst.

Netting losses against gains under the standard scheme

You can’t use a loss on one item to reduce your VAT bill on another. Businesses that net off losses across items under per-item accounting are miscalculating their VAT liability.

Incomplete purchase documentation

If your purchase records don’t clearly show that the item was acquired without VAT, HMRC can disallow the Margin Scheme treatment and assess VAT on the full selling price. Getting documentation right at the point of purchase protects you from paying unnecessarily later.

Inadequate separation of Margin Scheme and standard VAT stock

Many businesses buy some stock from private sellers and some from trade suppliers. HMRC requires that eligible and ineligible stock be clearly distinguishable in your records; mixed or ambiguous records create exposure across both accounting methods.

Incorrect VAT return treatment

Margin Scheme VAT information goes into Boxes 1, 6, and 7 of your VAT return, but it’s calculated differently from standard VAT. Not all bookkeeping software handles this correctly, so check before you file your first return using the scheme.

How Stripe Invoicing can help

Stripe Invoicing simplifies your accounts receivable (AR) process—from invoice creation to payment collection. Whether you’re managing one-time or recurring billing, Stripe helps businesses get paid faster and streamline operations:

• Automate accounts receivable: Easily create, customise, and send professional invoices—no coding required. Stripe automatically tracks invoice status, sends payment reminders, and processes refunds, helping you stay on top of your cash flow.

• Accelerate cash flow: Reduce days sales outstanding (DSO) and get paid faster with integrated global payments, automatic reminders, and AI-powered dunning tools that help you recover more revenue.

• Enhance the customer experience: Deliver a modern payment experience with support for 25+ languages, 135+ currencies, and 100+ payment methods. Invoices are easy to access and pay through a self-serve customer portal.

• Reduce back-office workload: Generate invoices in minutes and reduce time spent on collections through automatic reminders and a Stripe-hosted invoice payment page.

• Integrate with your existing systems: Stripe Invoicing integrates with popular accounting and enterprise resource planning (ERP) software, helping you keep systems in sync and reduce manual data entry.

Learn more about how Stripe can simplify your accounts receivable process, or get started today.