What is the VAT Margin Scheme?
Normally, VAT-registered businesses charge VAT on the full selling price of a good. For second-hand goods, that is a problem — because the original owner already paid VAT when the item was new. Charging VAT again on the full resale price would mean the same goods are effectively taxed twice.
The VAT Margin Scheme solves this by taxing only the margin — the difference between what you paid for an item and what you sold it for. VAT is charged at one sixth (16.67%) of that margin. If you buy a vintage watch for £400 and sell it for £600, VAT is due on £200, not £600. Your VAT bill is £33.33 instead of £100. That is a significant difference, and it is entirely by design.
You can use the scheme when selling second-hand goods, works of art, antiques, and collectors' items, provided you originally acquired them without a VAT charge on the purchase — meaning you bought them from a private individual, a non-VAT-registered seller, or another dealer using the margin scheme.
What goods are eligible?
Eligible goods include second-hand items of all kinds, works of art, antiques (generally items over 100 years old), and collectors' pieces such as stamps, coins, and medals. The common thread is that VAT was not charged on the original purchase — if a supplier has shown VAT separately on your purchase invoice, that item cannot enter the margin scheme and standard VAT rules apply to it.
A few categories are excluded regardless: precious metals, investment gold, and precious stones cannot use any margin scheme. Certain goods — motor vehicles, horses and ponies, houseboats, and caravans — are eligible but subject to their own specific variant rules rather than the general scheme.
How the standard Margin Scheme works in practice
Under the standard approach (sometimes called individual accounting), you track each eligible item separately. When you sell it, you calculate the margin on that single transaction and account for VAT on it. A negative margin — where you sell for less than you paid — produces no VAT, but that loss cannot be set against profitable sales. Every item stands alone.
For example: you buy three items for £200, £150, and £300 respectively. You sell them for £350, £100, and £500. Under individual accounting, VAT is due on the margins of items one (£150) and three (£200). The loss on item two (£50) is simply disregarded. You pay VAT on £350 total margin, which is £58.33.
What is the Global Accounting Scheme?
The Global Accounting Scheme is a simplified version of the VAT Margin Scheme offered by HMRC. Instead of tracking each item individually, you pool all eligible purchases and all eligible sales across the whole VAT period and calculate one overall margin:
Global margin = Total sales in the period − Total purchases in the period
VAT is one sixth of that figure. If the global margin is negative — your purchases exceeded your sales — no VAT is due, and the negative balance carries forward to the next period to be set against future sales.
Using the same three-item example from above: total sales £950, total purchases £650, global margin £300. VAT due: £50. Under global accounting, the loss on item two reduces the overall bill — something individual accounting does not allow.
The £500 item limit
Global accounting has a hard eligibility rule: any individual item you purchased for more than £500 cannot enter the scheme. It must be accounted for under standard individual margin scheme rules instead. You can still operate global accounting for the rest of your stock — it just means high-value items are tracked separately alongside your pooled stock.
There is one exception: if you buy a collection or bundle for more than £500 and the individual components are each worth less than £500, and you plan to split and sell them separately, those components can still enter global accounting.
Who should use the standard Margin Scheme?
Individual accounting under the standard Margin Scheme suits businesses that sell distinct, identifiable, higher-value items where every purchase and sale is clearly documented. Car dealers are the clearest example — motor vehicles are explicitly excluded from global accounting, so dealers must always use the individual method. The same logic applies to jewellers, fine art dealers, antique furniture dealers, and anyone selling items typically priced above £500. With fewer transactions per period, the per-item record-keeping is manageable, and individual accounting gives maximum precision over your VAT position.
Who should use the Global Accounting Scheme?
Global accounting is designed for high-volume, low-value dealers where tracking every item individually would be impractical. Think charity shops, market traders, online resellers buying job lots or mixed pallets from clearance sales, vintage clothing dealers, and second-hand bookshops. If your average purchase price is well under £500 and you are moving dozens or hundreds of items per week, the administrative burden of individual accounting is disproportionate to the VAT at stake on any single item.
Global accounting is also useful when you regularly sell some items at a loss — perhaps unsold stock cleared at the end of a market day. Under individual accounting, those losses are wasted. Under global accounting, they automatically reduce your total VAT bill for the period.
Side-by-side comparison
| Feature | Standard Margin Scheme | Global Accounting Scheme |
|---|---|---|
| VAT calculated on | Each item individually | Total period margin (pooled) |
| Loss items | Ignored — cannot offset other profits | Automatically offset against period gains |
| Item value limit | No limit | Purchase price must be £500 or under |
| Motor vehicles | Eligible (own variant rules apply) | Not eligible |
| Record-keeping | Detailed per-item stock book required | Pooled purchase and sales summaries |
| Best for | Car dealers, jewellers, fine art, antiques | Market traders, charity shops, online resellers, job-lot buyers |
| Negative margin | No VAT, no carry forward, no offset | No VAT, carried forward to next period |
Can you use both at once?
Yes, with care. If your stock includes both items under £500 (eligible for global accounting) and items over £500 (which must use individual accounting), you can run both methods simultaneously. The high-value items sit in their own per-item records; the rest are pooled. HMRC requires that you keep these two sets of records clearly separate and do not mix the figures on your VAT return.
What about record-keeping?
Both schemes require you to keep records for six years. Under individual accounting, HMRC expects a stock book with a separate entry for each item, recording the purchase price, sale price, and margin. Under global accounting, you keep a running purchase record and a running sales record for the period, plus a summary showing how you calculated the VAT due. Either way, HMRC can assess VAT on the full selling price if your records are inadequate — so getting this right matters.
How to start
Neither scheme requires you to register separately. You can begin using a VAT margin scheme at any time by keeping the correct records and reporting the figures on your VAT return using Box 6 (net sales) adjusted for margin scheme supplies. The global accounting scheme works the same way — no application, no approval process. The obligation is entirely on you to maintain the records and calculate VAT correctly.
If you are unsure which scheme applies to your business, or whether your current record-keeping meets HMRC's requirements, AutoVAT can review your trading pattern and configure the right approach from the outset — so you are compliant and only ever paying the VAT you actually owe.
Summary
The VAT Margin Scheme and the Global Accounting Scheme both exist to prevent double taxation on second-hand goods. The standard scheme works item by item and suits higher-value, lower-volume sellers. Global accounting pools everything across the period and suits high-volume, low-value dealers who regularly trade mixed stock. The choice is not permanent — you can switch — but getting it right from the start saves time, reduces your VAT bill, and keeps HMRC happy.
