Is There VAT on Second-Hand Goods? How the Margin Scheme Works

Managing Value Added Tax (VAT) is a key component of the UK tax system. But it can feel like a minefield, especially for second-hand items that were already taxed at the original point of sale.

Many UK sellers, dealing with second-hand items, operate under specific VAT schemes designed to avoid double taxation. Understanding VAT on second hand goods is important for businesses as well as consumers to ensure compliance with UK tax regulations.

This blog explains the VAT Margin Scheme for second-hand goods and how you can calculate it. After reading this blog, you will learn how to use the margin scheme and about the goods eligible for the VAT margin scheme.

What are Second-Hand Goods?

As the name suggests, second-hand goods are items that have been previously used and can be reused. Second-hand items exclude certain groups, such as precious stones or metals, because they have their own VAT rules.

Examples of VAT on Second-Hand Goods

Some of the items included in the second-hand category are:

• Used cars
• Refurbished electronics
• Pre-owned clothing
• Vintage furniture

Do you aim to create accurate bookkeeping ledgers with the help of tech-savvy accountants at accounting firms? Or need a guide about your tax problems in the UK? We can help!

Does VAT Apply to Businesses Selling Second Hand Goods?

Yes, VAT applies to businesses selling second-hand goods. Therefore, businesses engaged in selling second-hand goods with a taxable turnover of more than £90,000 must register for VAT.

This means selling second-hand goods does not exempt you from VAT registration. Moreover, the threshold applies in the same way as it does for other types of businesses. There is only one difference, and that is how VAT is calculated after registration, not whether you need to register.

What is VAT Taxable Turnover?

VAT taxable turnover is the total value of everything a business sells that is not exempt from VAT, including delivery charges. It is a gross figure that is calculated before deducting any business expenses.

Additionally, VAT taxable turnover includes sales made through platforms such as in-store, eCommerce websites, and eBay.

What is a “Business” For VAT Purposes?

The definition of a “business” for VAT purposes is not always straightforward. In the UK, many court cases have considered whether an organisation is carrying on a business. When it comes to second-hand items, buying and selling goods repeatedly may indicate a business.

For instance, buying second-hand clothes from shops and reselling them online for a profit. Remember, if your business is registered for VAT, you must account for VAT on second hand goods sales. The rate depends on the sales of goods, or you can use a VAT margin scheme for eligible second-hand goods.

What is the VAT Margin Scheme for Second-Hand Goods?

Normally, VAT-registered businesses in the UK charge tax on the entire sale price. But the margin scheme is different.

The VAT margin scheme is the most common method for handling VAT on second hand goods. It allows you to pay VAT only on the profit margin, not on the full selling price.

How It Works

Let’s say you bought a second-hand laptop for £100 and sold it for £200, your margin is £100. Instead of paying VAT on that £200, you pay VAT on £100.

Moreover, you calculate the tax due by using a VAT fraction (currently 1/6 for the standard 20% rate) because your profit is effectively inclusive of VAT. In the above example, your VAT liability would be £16.67.

What are the Eligibility Criteria for the VAT Margin Scheme?

There are certain products in the business of selling old items that can be used for the VAT margin scheme, and then there are a few products that are not eligible to qualify for the criteria to use the VAT margin scheme.

For example, items of collectors, antiques, works of art, and second-hand goods are all types that can easily qualify for the VAT margin scheme. On the other hand, precious stones, investment in gold, and precious metals, and the buying of any items that include VAT are not eligible to get the benefits of the VAT margin scheme.

Do You Have to Pay Tax on Selling Second-Hand Goods In the UK?

Yes, you may have to pay tax on selling used items in the UK. However, it depends on your situation.

If you are running a business and buy and sell used goods to make a profit, then you may need to pay income tax on your profits. And, if your turnover exceeds £90,000, you may have to register for VAT. In this case, VAT on second hand goods may apply under special rules.

Nonetheless, if you are not trading and occasionally sell your own belongings, you do not have to pay income tax. Also, you do not need to register for VAT.

When Can A Business Not Use the Margin Scheme?

You cannot use the Margin Scheme in certain conditions because it is designed for second-hand items where VAT was not previously claimed.

These conditions include:

• When you purchase goods and reclaim VAT on them
• When you buy new goods
• When you import goods under standard VAT rules
• When you do not keep accurate purchase and sale records

In these cases, you need to account for VAT using the standard method.

What Goods are Eligible For the VAT Margin Scheme?

When considering VAT on second hand goods, it is important to understand the items that are eligible for the VAT margin scheme.

The VAT margin scheme is a lifesaver for certain business industries, including:

• Used car dealers
• Online resellers
• Antique shops

Note: Antique dealers often use the VAT margin scheme because they buy and resell used items and collector’s items.

Eligible Items

Some of the eligible items include:

• Second-hand goods
• Works of art
• Antiques
• Collectors’ items if the conditions are met

Remember, you must have bought the goods from an individual who did not charge VAT, such as a non-registered VAT business.

Excluded Items

You cannot use the scheme for:

• Precious metals
• New goods
• Imported items where VAT was already claimed

Is There VAT on Antiques?

Yes, there can be VAT on antiques. However, as mentioned above, it depends on how they are sold.

If the antique item is sold under standard rules, VAT is charged on the full selling price. However, if it is sold under the VAT margin scheme, VAT is charged on the profit margin.

Moreover, if you are a private individual selling your own antiques, VAT is not applied.

How Do You Calculate the VAT Margin Scheme?

To calculate your VAT under the VAT margin scheme, you use the following formula:

• The first step is to find your margin. You can calculate your margin by subtracting the purchase price from the selling price.
• The next step is to calculate VAT on the margin, and to do that, you use the rule of 1/6 of the margin.

For example:

VAT = margin ÷ 6

Can I Claim Back VAT on Second Hand Goods?

A business can only claim VAT if the purchase includes VAT, and it has a valid VAT invoice from a VAT-registered business. The amount of VAT you can claim is the VAT shown on that invoice.

If you have bought second-hand items from a private person or a non-VAT registered business, VAT is not charged. Hence, there is nothing to reclaim from HM Revenue and Customs (HMRC).

To understand VAT on and how to reclaim it in detail, read our blog on How to Reclaim VAT on New Build.

The rules of tax gross-up become tricky when you have a higher chance of making an error in your returns. Our professional and detail-oriented accountants can help you! Get in touch with us.

Record Keeping

If you are a business dealing with VAT on second hand goods, you must keep accurate sales and purchase records. You need a valid VAT invoice that shows VAT charged if you are buying from a VAT-registered business.

A VAT invoice is not issued if you buy from a private individual, but you should still keep records for your business.

Keep detailed records of:

• Sales records
• Purchase details include the date
• Name and address of the supplier
• Calculations of margins
• Quantity of goods
• Stock records of each item

Benefits of VAT on Second Hand Goods

Some of the advantages of VAT on second hand goods rules are:

• It prevents double taxation by ensuring VAT is applied to only the profit margin and not on the full selling price.
• It keeps resale prices competitive. This makes used items more affordable for consumers.
• It supports sustainability. You reuse goods and encourage recycling and reducing waste.

Need Help With Your VAT Returns?

If you need help with your VAT returns, we have got you covered. At AccountingFirms, you can find the best accountant suitable for your business. Our platform offers qualified accountants and tax experts who handle your accounting matters while staying compliant with UK tax regulations.

The Bottom Line

In the UK, VAT on second hand goods is designed to ensure fairness while supporting businesses in the resale market. The VAT margin scheme allows VAT to be charged only on profit margins, not on the full selling price.

Nonetheless, you still need to monitor your total turnover for VAT registration. Also, keep accurate sales and purchase records to remain compliant.

Understand and apply these rules correctly to ensure compliance while maximising profitability in the second-hand market.

Disclaimer: All the information provided in this article on  VAT on second hands goods in the UK, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.