The VAT Margin Scheme for Resellers: A Worked Example

The short version

Under the VAT margin scheme you charge VAT on your profit margin, not the full selling price. On a used laptop, that usually means a lot less VAT to pay.
The VAT is 1/6 of the margin. Buy at £200, sell at £300, margin is £100, VAT due is £16.67.
The trade-off: you can't reclaim VAT on the purchase, and your invoice can't show a separate VAT line.
Records make or break it. No stock book, no margin scheme: HMRC can make you account for VAT on the full price instead.

Short answer: the VAT margin scheme lets you pay VAT on the difference between what you bought a used laptop for and what you sold it for, instead of on the whole selling price. For a reseller turning over second-hand kit, that's the difference between a sensible VAT bill and one that eats your margin. This is a worked example, in plain English, of how it actually runs.

It's worth getting right, because the maths is genuinely in your favour when you use it and genuinely against you when you get it wrong. We'll walk through one laptop, then the records you need to keep so the scheme holds up.

What the VAT margin scheme is, in one paragraph

Normally a VAT-registered business charges VAT on the full price of what it sells and reclaims VAT on what it buys. That breaks down for second-hand goods, because most used stock is bought from people who can't give you a VAT invoice: members of the public, end-of-life corporate disposals, businesses selling off old kit. There's no input VAT to reclaim, so charging output VAT on the full resale price would tax the same goods twice. The margin scheme fixes that. You account for VAT only on your margin, the gap between your buying price and your selling price.

You pay VAT on what you added, not on the whole price the customer pays.

The worked example: one £200 laptop

Say you buy a graded ex-corporate laptop for £200 and sell it on for £300. Here's how the two approaches compare.

Standard VAT More to pay

VAT on the full £300 sale. That's £50 of VAT (1/6 of £300), and on a stock item you bought VAT-free there's nothing to reclaim against it.

Margin scheme Less to pay

VAT on the £100 margin only. The VAT is 1/6 of £100, which is £16.67. You keep the rest of the margin.

The difference Per unit

£50 versus £16.67 on a single machine. Multiply that across every unit you turn over in a year and it's real money.

The number to remember is the 1/6 fraction. UK VAT is 20%, and the margin you charge it on is treated as VAT-inclusive, so the VAT element is 1/6 of the margin, not 20% of it. On a £100 margin: £100 divided by 6 is £16.67. On a £100 margin where you'd mistakenly applied 20%, you'd overpay (£20 instead of £16.67), so the fraction matters.

If you sell the laptop for exactly what you paid, the margin is nil and there's no VAT to account for. If you sell it for less than you paid, the margin is treated as nil too: a loss on one item does not create a VAT credit you can set against the profit on another. You account for each item's margin on its own.

The trade-off: what you give up

The scheme isn't free money, and it's worth being straight about the catch.

No input VAT to reclaim on the goods. You can't reclaim VAT on the purchase of a margin-scheme item. In most cases there was no VAT charged to you anyway, which is the whole point, but it means the scheme suits VAT-free stock, not stock you bought on a normal VAT invoice.
No separate VAT line on your sales invoice. Under the scheme your invoice to the customer cannot show VAT as a separate amount. It shows the total price only. That's a problem if your buyer is VAT-registered and wants to reclaim, because they can't.
It's optional, per item. You don't have to use the margin scheme on everything. For stock you bought with reclaimable VAT, or for a VAT-registered buyer who needs an invoice they can reclaim against, standard VAT may suit better. You can run both, item by item.

Records: the part that actually trips people up

The maths is easy. The record-keeping is where margin scheme claims fall over. To use the scheme, HMRC expects you to keep a stock book and to hold purchase and sales records that tie each item bought to the same item sold.

In practice that means, for every machine:

A stock number linking the purchase to the sale, so each item can be traced through.
Purchase details: date bought, who from, what you paid, and a description that identifies the specific unit (serial number is the clean way to do it).
Sales details: date sold, the selling price, and an invoice that does not break out VAT separately.
The margin and VAT worked out and recorded per item.

General guidance, not tax advice

This is a plain-English overview, not advice on your specific situation. VAT rules change and the detail matters. Before you rely on the margin scheme, check HMRC's VAT margin scheme guidance and confirm with your accountant that it's right for how you buy and sell. Get the records wrong and HMRC can refuse the scheme and make you account for VAT on the full selling price, which is exactly the bill the scheme exists to avoid.

When the margin scheme is the right call for a reseller

For most independent resellers turning over used laptops, the margin scheme is the obvious fit, because the stock comes in VAT-free and the buyers are often end users rather than VAT-registered businesses chasing a reclaim. It keeps your VAT bill proportionate to the value you actually add.

It's less of a fit when you're buying stock on a standard VAT invoice you could reclaim against, or when your customer is VAT-registered and specifically needs an invoice with VAT shown so they can recover it. Those are the cases where you'd weigh standard VAT instead, on those items.

The deciding factor is usually who you buy from and who you sell to. If you're buying graded, ex-corporate stock with no recoverable VAT and selling it on, the margin scheme is almost always the cheaper way to account for it, as long as your records are in order.

Frequently asked questions

Do I pay VAT on the full selling price or just my margin?

Under the VAT margin scheme you account for VAT on your margin only, the difference between what you paid for the item and what you sold it for, not on the full selling price. Buy a laptop at £200 and sell at £300, and you account for VAT on the £100 margin.

How do I work out the VAT on the margin?

The VAT is 1/6 of the margin, because the margin is treated as VAT-inclusive at the 20% rate. On a £100 margin, that's £100 divided by 6, which is £16.67. Don't apply 20% to the margin directly, or you'll overpay.

Can I reclaim the VAT on a laptop I buy for resale under the scheme?

No. You can't reclaim input VAT on the purchase of a margin-scheme item. In most cases there was no VAT charged on the purchase anyway, which is why the scheme exists. If you did buy stock on a reclaimable VAT invoice, standard VAT may suit that item better.

What records do I need to keep to use the margin scheme?

You need a stock book and purchase and sales records that link each item bought to the same item sold: a stock number, purchase date and price, a description that identifies the unit, the sale date and price, and the margin and VAT worked out per item. Without proper records HMRC can refuse the scheme and tax the full selling price.

Can I show VAT separately on a margin scheme invoice?

No. A margin scheme sales invoice shows the total price only and cannot break out VAT as a separate amount. That means a VAT-registered buyer can't reclaim VAT on the purchase, so for those customers you may prefer to sell on standard VAT instead.

Related guides

HCI Distribution supplies graded, tested ex-corporate laptops to the UK trade at prices you can sell on. If you want consistent stock and a named person who answers the phone, open a trade account and tell us what you need.