VAT on Second Hand Goods Explained for UK Businesses

VAT on second-hand goods does apply, but it doesn’t always work the way you might expect. As a VAT-registered business, you do not automatically have to charge VAT on the full selling price. 

Instead, HMRC offers a specific scheme called the VAT Margin Scheme. This scheme allows you to pay VAT only on the profit you make, rather than the total sale value.

This guide covers all the essentials for VAT on second hand goods, including:

• Do you pay VAT on second hand goods
• What is the VAT margin scheme for second-hand goods?
• What goods are eligible for the VAT margin scheme?
• And much more…

Let’s break it down!

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What is VAT on Second-Hand Goods? – The VAT Margin Scheme

With the help of the VAT margin scheme, you will get the benefit of paying less amount of VAT on second-hand goods. How much VAT you will pay on your selling items will depend on the purchase prices of your goods and the resale price. Then you will have to pay 16.67% of the VAT on the difference between the purchase price and resale price. The VAT margin scheme will give you benefits while you are planning to resale certain goods from your store. A reduced amount as VAT payable will be paid by you.

These goods involve some certain kind on which you were even unable to claim VAT after you made the purchase. This explains that you no longer have to worry about VAT liabilities and consider the full selling prices of such products. In some cases, the second-hand items are sold out but the resale price is less than the purchase price. If this is the case, you are not accountable to pay VAT in such circumstances.

What Actually Is VAT on Second-Hand Goods?

VAT, or Value Added Tax, is a consumption tax. It is charged on most goods and services sold in the UK. The standard rate is 20%, and businesses with a taxable turnover above £90,000 in any rolling 12-month period must register for VAT with HMRC.

When it comes to second-hand goods, VAT was likely already paid when the item was first sold new. If a dealer buys that item from a private individual (who can’t reclaim VAT) and resells it, charging 20% on the full price would mean the government collects VAT twice. That does not seem fair, and HMRC acknowledges this. Therefore, there is the VAT margin scheme for second-hand goods through which HMRC avoids this double-taxing.

So the basic principle is simple enough: VAT on second-hand goods does apply. But it applies through a special mechanism that taxes only the profit margin, not the full selling price. Hence, understanding how VAT on second hand goods UK works is essential for staying compliant while protecting your margins.

Do You Pay VAT on Second Hand Goods?

In the UK, whether you pay VAT on second-hand goods depends on who you are buying from and how they account for it.

1. Buying from Private Sellers

If you buy an item from a private individual (for example, through a casual sale on Vinted, eBay, or at a car boot sale), you do not pay VAT on second hand goods. Private sellers aren’t VAT-registered, so they can’t legally charge it.

2. Buying from a Business

If you buy from a VAT-registered business, VAT on second hand goods usually applies. But the way it’s calculated varies:

• Standard VAT Rules: The business charges the standard 20% VAT on the full selling price, exactly like they would for a new item. This typically happens if the business originally bought the item new and reclaimed the VAT on that purchase.
• VAT Margin Scheme: This is very common for second-hand dealers such as car showrooms or antique shops. Instead of charging VAT on the full price, they only pay VAT on their profit margin (the difference between what they paid and what they sold it for).

For you as a consumer, you’ll find the VAT is already “baked into” the price you see. You won’t get a VAT breakdown on your receipt. And even if you’re VAT-registered yourself, you can’t reclaim it.

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

The VAT Margin Scheme is an optional accounting method for businesses selling second-hand goods to handle taxes. Instead of paying VAT on the full selling price, you only pay VAT on the difference (margin) between what you paid for an item and what you sold it for.

The VAT rate on that margin works out at 16.67%, or 1/6th of the margin. Because the sale price you’ve set already includes VAT, you are “extracting” the tax rather than adding it on top when calculating VAT on second hand goods.

Example

Let’s say you buy a second-hand guitar from a private seller for £200 and sell it on for £350.

• Your margin is £150 (£350 minus £200)
• The VAT on second hand goods you owe is £25 (£150 divided by 6), as the margin already includes VAT

If you weren’t using the scheme and stuck to standard VAT rules, you’d owe £58.33. By using the Margin Scheme, you’ve saved over £33 on a single guitar. If you’re shifting stock regularly, those savings become massive over a year.

Important: No VAT on Sales Made at a Loss

If you sell an item for less than you paid for it, the margin is negative, and no VAT on second-hand goods is owed on that sale. Under the standard margin scheme, you cannot offset that loss against other profitable sales, though.

Under standard VAT rules, because you must still pay £66.67 in tax out of your £400 selling price, your total loss escalates to £166.67. Under the Margin Scheme, since no tax is owed, your loss stays capped at exactly £100.

What Is the Way to Calculate Your VAT Margin?

The simplest way to calculate your VAT margin is to subtract your purchase price from your selling price to find the profit, then take one-sixth of that figure.

Here’s the Step-by-Step Calculation:

1. Work out your gross profit: Selling price – Purchase price.
2. Apply the VAT fraction: Multiply that profit by 16.67% (or divide by 6).
3. The result: This is the second hand goods VAT you owe to HMRC.

Example: You buy a vintage watch for £400 and sell it for £700. Margin = £300. VAT = £300 / 6 = £50.

Note that costs like repairs, restoration, or business overheads should not be added to your “purchase price.” These are separate business expenses. You might be able to reclaim the VAT on those costs normally, but they don’t change the margin calculation for the item itself.

Quick Calculation Table:

What Goods Are Eligible for the VAT Margin Scheme?

Not everything qualifies for this specific way of handling VAT on second-hand goods. HMRC defines qualifying goods as “tangible moveable property” that can be used again as they are or after repair.

The following categories are eligible:

• Second-hand goods generally (items that have been used)
• Works of art
• Antiques (goods over 100 years old)
• Collectors’ items (stamps, coins, scientific or archaeological interest pieces)

Some goods are specifically excluded from the margin scheme for VAT on second hand goods:

• Precious metals and precious stones
• Alcoholic beverages
•  Livestock
•  Investment gold

Important note: If an item has never been used, it can still qualify as a second-hand good for the Margin Scheme, provided you bought it from a private individual who couldn’t reclaim the original VAT. For example, a pair of brand-new, unworn shoes bought from a private seller counts as second-hand for VAT purposes because the consumer-tax chain was already broken.

Are You Eligible for the VAT Margin Scheme?

To use the margin scheme for VAT on second-hand goods, your business must:

• Be registered for VAT
• Buy and resell eligible goods
• Have purchased the goods in circumstances where you could not reclaim input VAT on the purchase

That last point is crucial. The scheme only works if you bought the goods from a source where no VAT was charged or reclaimable.

Who Cannot Use the VAT Margin Scheme?

You are ineligible to use the Margin Scheme for an item if:

• You were charged VAT: If you bought an item and received a standard VAT invoice showing the VAT amount separately, you cannot use the Margin Scheme for VAT on second-hand goods. You must account for VAT on the full selling price.
• You are a casual seller: If you are just selling your own old clothes or furniture as a hobby, you aren’t a business and don’t use VAT schemes at all.

Alternative: Global Accounting Scheme

If you deal in a high volume of low-priced items (typically under £500 each), you may be eligible for the Global Accounting Scheme. This allows you to calculate VAT on second-hand goods on the total margin of all your sales in a period rather than on each individual item.

What Is the Global Accounting Scheme?

The Global Accounting Scheme is a simplified version of the standard VAT Margin Scheme. It is designed for businesses that handle a high volume of low-value second-hand items. This can be second-hand book shops, vintage clothing retailers, or charity shops.

Unlike the standard margin scheme, where you calculate VAT on second-hand goods for each item, Global Accounting looks at your total eligible sales and purchases within a single VAT period. That means:

• Add up everything you received from selling eligible goods in the period.
• Deduct the total amount you spent buying eligible goods during that same period.
• If the result is a positive profit margin, divide that margin by 6 (or multiply it by 1/6th) to determine the exact VAT due to HMRC.

One of the big advantages of global accounting is that losses on individual items can offset profits on others. Under the standard margin scheme, if you sell an item at a loss, you simply get no VAT relief for it. Under global accounting, that loss reduces the overall margin you are taxed on.

Note: Only items with a purchase price of £500 or less can be included in the scheme.

Is the Global Accounting Scheme Right for Me?

The Global Accounting Scheme is likely right for you if you are:

• A VAT-registered trader selling high volumes of low-value, second-hand items (such as books, clothes, or bric-a-brac).
• Operating a house clearance, charity shop, or similar volume-resale business.
• Looking to calculate VAT on your total period margin rather than calculating the specific profit and tax achieved on every individual sale.

Important Restrictions:

If an individual item has a purchase price of more than £500, or if you sell motor vehicles, boats, caravans, or horses, you are legally barred from using Global Accounting for those items and must use the Standard Margin Scheme instead.

Note: You must still maintain a line-by-line purchase and sales record to prove your stock stays below the £500 limit.

Do You Charge VAT on Second Hand Goods?

The answer depends on two main things: whether you are acting as a private individual or a VAT-registered business.

1. Private Sellers

If you are a private individual selling your own personal belongings, you generally do not need to charge VAT on second hand goods at all. Selling your old sofa or your second-hand bike does not make you a VAT-registered business.

That said, HMRC does watch for patterns. If you are regularly buying items cheaply and reselling them for profit, they may decide you are carrying out a trading activity. In that case, income tax (and potentially VAT if turnover is high enough) could come into play.

2. VAT-Registered Businesses

If you buy items specifically to resell them for a profit, you are considered a business. If your business is VAT-registered and sells second-hand items, you must account for VAT on those sales. The question is: how much? You have two options.

Option one is to apply standard VAT at 20% on the full selling price. Option two, which is often more beneficial, is to use the VAT Margin Scheme and pay VAT only on the profit you make. Most businesses dealing in used goods prefer the second route when managing VAT on second hand goods, understandably.

What Are the Record-Keeping Rules for VAT Second Hand Goods?

If you use the VAT Margin Scheme for second hand goods VAT, HMRC requires strict record-keeping to prove the margins you’ve achieved. If you fail to maintain these specific records, it can lead to you owing VAT on the full selling price of items rather than just the margin.

1. The Stock Book

You must maintain a detailed stock book (written or electronic) that tracks every item individually. It must include:

• Purchase Details: Unique stock number (in sequence), date of purchase, purchase invoice number, seller’s name, and a clear description of the item.
• Sales Details: Date of sale, sales invoice number, buyer’s name, and the final selling price.
• VAT Calculations: The gross margin for each item and the VAT due (calculated as 1/6th of that margin).
• Negative Margins: If you sell at a loss, you must record the VAT due as “nil”. You cannot use this loss to offset other profits unless you use the Global Accounting Scheme.

2. Invoice Requirements

Margin Scheme invoices have different rules from standard VAT invoices.

• Purchase Invoices: You must keep the original invoice from the seller. If you buy from a private individual or an unregistered business, you must prepare a purchase invoice and ensure that both you and the seller sign and date it to formally validate the transaction details.
• Sales Invoices: You must issue an invoice for every sale that includes:
  1. The item’s unique stock book number for cross-referencing.
  2. The total price does not show VAT separately.
  3. A statement from any of the following: ‘margin scheme – second hand goods’, ‘margin scheme – works of art’ or ‘margin scheme – collectors’ items and antiques’

You must keep all records for at least 6 years to remain compliant with VAT on second hand goods UK regulations. And if you have held stock for longer than 6 years, you must keep the original purchase records until the item is eventually sold.

If you handle the paperwork correctly, you will find that VAT on second hand items is just another manageable part of running a successful UK business.

Common Mistakes Businesses Make With VAT on Second Hand Goods

Common mistakes in VAT for second-hand goods involve:

• Adding repair costs to the purchase price to lower your margin (not allowed).
• Showing VAT separately on a customer’s invoice (invalidates the scheme).
• Missing a Stock Book or failing to give every item a unique ID number.
• Applying the scheme to brand-new commercial stock purchased directly from a manufacturer, wholesaler, or VAT-registered supplier.
• Claiming back VAT on the original purchase of the item (you can’t do both).
• Applying the scheme to items where you were originally charged standard VAT.
• Exceeding the £500 limit for individual items when using Global Accounting.
• Forgetting the mandatory statement regarding VAT on second hand assets on your invoices.

What About VAT on Second-Hand Cars?

Cars are one of the most searched areas within VAT on second-hand goods, and for good reason. If you buy a car from a private seller, no VAT is involved. When a VAT-registered business resells a used car, they can usually apply the Margin Scheme to pay VAT only on their profit margin.
However, if the car is a VAT-qualifying vehicle, meaning a business previously reclaimed the VAT in full and charged standard VAT on the full selling price when you bought it, then you must charge VAT on the full selling price when you sell it. So, the specific VAT history of the vehicle matters just as much as the sale itself.

Can You Claim VAT on Second-Hand Goods?

In most Margin Scheme cases, the answer is no. Because you did not pay VAT when buying the goods, there is nothing to reclaim. This is part of the trade-off. You benefit from paying VAT only on your margin, but you do not get input VAT relief.

Is VAT Different for Second-Hand Goods Sold Online?

Not really. Whether you sell in a physical shop or through an online platform, the rules around VAT on second hand goods stay the same. What matters is how the item was bought and which scheme you are using. Online selling does not change the VAT treatment.

Is VAT Applied Differently to Second-Hand Business Assets?

Yes. If your business bought an asset like equipment or furniture and reclaimed VAT on it at the time, then selling it later means charging VAT on the full price. If no VAT was reclaimed, then the Margin Scheme might be available. That is why VAT on second hand assets often needs a closer look than standard resale goods.

What About VAT on Second-Hand Goods and Charity Shops?

Charity shops operate under a unique set of tax rules in the UK. If a charity shop is registered for VAT, it does not use the standard or Global Accounting version of the VAT Margin Scheme for its donated stock. Instead, under HMRC VAT Notice 701/1, the sale of eligible donated goods is zero-rated (0% VAT).

This zero-rating is a huge advantage over a margin scheme because it allows the charity to sell items VAT-free to the customer while still allowing the charity to reclaim the VAT (input tax) they paid on shop overheads, such as rent, utility bills, and price tags.

However, this is not a blanket rule for everything sold in a charity shop. Certain strict conditions must be met:

• Condition of Goods: The items must be sold in substantially the same condition they were donated (basic cleaning, pressing, or minor repairs are allowed). If a charity shop completely upcycles or alters an item into something new, the sale becomes standard-rated (20% VAT).
• Bought-In Stock: If the shop buys brand-new commercial goods to sell alongside donations (such as new Christmas cards or branded gifts), these items do not get the zero-rate relief and are subject to regular VAT rules.
• Prior Use: If the charity uses a donated item for its own purposes before selling it (e.g., hanging a donated painting in their head office for several years), it loses the zero-rate and may be subject to standard VAT.

Charity VAT is a specialist area. If you run or manage a charity shop with a turnover approaching or exceeding the standard VAT registration threshold, it is well worth getting tailored advice from specialist charity accountants to navigate the strict boundaries between donated, bought-in, and upcycled stock.

Can You Use the Margin Scheme if You Export Second-Hand Goods?

Yes, you can. But the rules change based on where the items are going. Exports from the UK to countries outside the UK are usually zero-rated for VAT. This applies as long as you have solid proof that the goods have actually left the country.

If you are sending second-hand goods to buyers in Northern Ireland, specific rules apply under the Northern Ireland Second-hand Goods Scheme. Whether you can use a margin scheme for those sales depends on how the goods were acquired.

For any exports, make sure you keep your shipping documents and also proof of export. HMRC might ask to see these to back up why you zero-rated the sale.

Do You Need to Register for the VAT Margin Scheme?

No. There is no separate registration process for the VAT Margin Scheme. You simply need to be VAT-registered, meet the eligibility conditions, and keep the required records. You then simply have to report your margin scheme transactions correctly on your VAT return.

The key is getting the record-keeping right from day one. Because it becomes much harder to reconstruct stock books and purchase histories retrospectively.

Making Tax Digital and Second Hand Goods VAT

If your business is VAT-registered, you are likely already subject to Making Tax Digital for VAT requirements. This means you need to keep your records in MTD-compatible software and send your returns to HMRC digitally.

Most accounting software packages can handle margin scheme transactions. But it is always worth double-checking with your provider first. If you are using a manual stock book alongside digital accounting software, just make sure the two match up perfectly. So that HMRC can follow the trail from your records to your return.

The Bottom Line

VAT on second hand goods is not as complicated as it first looks. But it does have some specific rules that are easy to get wrong. The margin scheme exists precisely because charging full 20% VAT on used items that have already been taxed would not be fair.

If you use it correctly, it’s a massive win for your cash flow. Just make sure your stock book is up to date, and you know exactly which items qualify.

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How Accotax Can Help

If you need help with VAT on second hand goods or any accounting service, such as bookkeeping, VAT, or year-end accounts, visit Accotax. We offer a range of packages designed to fit your unique needs!

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Disclaimer: The information about the “VAT on Second Hand Goods Explained for UK Businesses” is provided in this article including text and graphics. It does not intend to disregard any of the professional advice.