VAT Second Hand Margin Scheme: Calculating Your Margin

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When calculating your margin for the VAT purposes of the second hand margin scheme, you need to remember this:

VAT under the margin schemes is based on the difference between what you paid for the item and what you sold it for, not the overall profit you have made on it.

What this means is that if you buy something and pay for work to be carried out on it before you re sell it – the VAT you pay will be based on the difference between the original cost of the item and the amount you sell it for, you will need to exclude the work you did on it.

An Example of Calculating Your Margin for the Second Hand Margin Scheme

You buy a used table for £500 and pay a restorer a further £500 to carry out work on the table before selling it on for £1,500.  For VAT purposes the margin is £1,000, that is £1,500 less £500 original cost.  Therefore you will pay VAT of £166.70 (£1,000 x 16.67%).

What is the Selling Price?

The selling price is the amount you sold the item for including any incidental costs you have charged to your customer such as postage and packaging.

What is the Purchase Price?

This is the amount you paid for the item including any incidental costs you have been charged such as postage and packaging.

If you make a loss on an item then you do not need to pay VAT but you must still include it in your bookkeeping records.