Margin scheme for second-hand goods
How dealers in used goods, antiques, and art apply VAT only to their margin rather than the full sale price. Available in most EU 27 + UK.
The short version
Under the margin scheme, a dealer in used goods, art, antiques, or collectors' items pays VAT only on the difference between sale price and purchase price - not on the full sale price. This avoids double-taxing items that already had VAT charged at first sale, when they re-enter the supply chain.
Why it exists
When a private individual sells a used car back to a dealer, that sale carries no VAT (the seller is not a VAT-registered trader). The dealer resells the car to another consumer. Without the margin scheme, the dealer would charge VAT on the full sale price - effectively taxing the entire value of the car for the second time, even though VAT was already paid when it was new. The margin scheme limits VAT to the dealer's actual value-add (the margin), preserving the design intent of VAT as a tax on consumption rather than a tax on transactions.
What goods qualify
- Second-hand goods: tangible movable property, suitable for further use as is or after repair, other than works of art / collectors' items / antiques.
- Works of art: paintings, drawings, sculptures, hand-printed photographs, etc. (Directive Annex IX Part A definition).
- Collectors' items: stamps, coins of historic interest.
- Antiques: over 100 years old (Directive Annex IX Part C).
The classic application is car dealers, but it's used widely in art, antiques, books, and equipment trading.
How the calculation works
Suppose a dealer buys a used Honda for EUR 8,000 from a private seller and sells it on for EUR 10,000 with VAT included. Margin = EUR 2,000. If the standard rate is 23%, the VAT element of the margin is EUR 2,000 / 1.23 - 2,000 = EUR 374. The dealer remits EUR 374 in VAT. The customer pays EUR 10,000 total. Without the margin scheme, VAT on a EUR 10,000 sale at 23% would be EUR 1,870 - five times higher.
Invoice rules
The dealer's invoice cannot show VAT separately - that would let the customer recover VAT on the full sale price, defeating the scheme. The invoice marks "Margin scheme - second-hand goods" or equivalent. The customer therefore cannot recover any VAT on the purchase, even if they're a VAT-registered business.
Mandatory vs optional
The margin scheme is generally optional. A dealer can choose to apply it on each transaction, or use the full standard scheme. For a single high-value item bought from a private seller, the margin scheme is almost always better. For an item bought from another VAT-registered dealer with full input-tax recovery, standard scheme may work out better - especially if your customer is VAT-registered and wants the input tax to recover.
Global accounting method
Some member states allow a "global accounting" variant of the margin scheme where the dealer computes the margin over an entire VAT period rather than per item. This is useful for high-volume low-value categories (used books, second-hand clothing) where per-item tracking is impractical.
Common questions on this topic
Does this apply if my customer is in a non-EU country other than the UK? No - the rules in this guide cover EU-EU and EU-UK movements specifically. For non-EU third countries (Switzerland, Norway, US, etc.), each pair has its own treaty or tariff treatment.
What records should I keep? EU and UK tax authorities expect you to retain the underlying invoices, VAT-number validation evidence (VIES consultation reference or HMRC check timestamp), and proof of supply for six years (UK) or as required by each member state (varies between five and ten years across the EU 27).
How often do these rules change? The base Directive changes rarely (the last major reform was 1 July 2021 for distance selling). Member-state implementing details change more frequently. Always confirm against your national tax authoritys current guidance for time-sensitive decisions.
Sources
- EU VAT Directive 2006/112/EC Articles 311-325 (special schemes for second-hand goods, works of art, collectors' items, antiques).
- HMRC Notice 718/1: margin scheme and global accounting
- European Commission: VAT special schemes
When the margin scheme matters — the economic logic
The margin scheme exists to prevent VAT double-taxation when goods that have already had VAT charged at original sale re-enter commerce through a second-hand dealer. Imagine a car: the original buyer paid VAT at 20% on the £20,000 purchase. When they sell the car to a dealer for £10,000 three years later, the dealer cannot recover any VAT (the buyer is a private individual, so no VAT was charged on this sale). If the dealer then resold the car at £12,500 charging full VAT on the resale, the total VAT collected across the goods' lifetime would be £4,000 (original) + £2,083 (resale at 20% on £12,500) = £6,083 — far exceeding what would have been collected on a single retail sale at the same total revenue. The margin scheme solves this: dealers charge VAT only on the margin (£2,500 = £12,500 - £10,000) at the standard rate, yielding £417 — meaning the total system VAT is £4,417, comparable to a single retail-sale scenario. This is consumption-tax neutrality: VAT scales with consumption, not with the number of transactions in the goods' lifecycle.
Eligible goods under the margin scheme
The EU VAT Directive (Articles 311-325) and the UK's mirror provisions cover four categories of eligible goods under the margin scheme: (1) Used or second-hand goods: cars, motorcycles, antique furniture, used books, refurbished electronics, used clothing. (2) Works of art: paintings, sculptures, original prints. (3) Collectors' items: stamps, coins, banknotes — including investment-grade gold and silver coinage. (4) Antiques: items over 100 years old. To qualify, the goods must have been acquired from a non-VAT-registered person or from another margin-scheme dealer (in which case the supply chain stays inside the margin-scheme framework). Goods acquired with full VAT invoiced cannot be put into the margin scheme — they follow normal VAT accounting (input VAT recovery on purchase, output VAT on full sale price). Some jurisdictions further restrict the eligible categories — France has a more permissive scope, while Germany takes a stricter view on what counts as a "collectors' item." Always check the national tax authority's published list before applying the scheme.
Record-keeping requirements — the audit trail
Margin-scheme record-keeping is more demanding than standard VAT bookkeeping. For each eligible item, the dealer must record: the date of purchase, the supplier (name + status — private individual vs another margin-scheme dealer), the purchase price (gross, since no VAT input recovery), a description sufficient to identify the item, the date of sale, the sale price (gross, since margin VAT is calculated from gross totals), the calculated margin, the VAT on the margin, and the link back to the purchase record. UK HMRC's Notice 718 requires keeping these records for 6 years; EU member states vary between 5-10 years. For high-volume dealers (used-car dealerships, online second-hand book sellers), the "global accounting" method allows aggregating purchases and sales by VAT period rather than per-item tracking — easier in practice but loses item-level visibility. The global accounting threshold in the UK is items individually worth less than £500; above £500, item-level records are mandatory. Most jurisdictions provide an electronic margin-scheme record template that can be downloaded as a spreadsheet to ensure all required fields are captured.
When NOT to use the margin scheme
The margin scheme is optional — dealers can choose to apply it transaction-by-transaction. There are scenarios where opting out is more advantageous: (1) Sale to a VAT-registered business who could recover input VAT if charged normally. Using the margin scheme means no VAT invoice is issued (only a margin-scheme summary), so the customer can't recover anything. If the customer would benefit from input recovery, the dealer should sell outside the scheme — charging VAT on the full sale price but with the customer able to deduct it back. (2) Export sales outside the EU/UK — exports are typically zero-rated, so the margin-scheme treatment offers no advantage and creates extra paperwork. (3) Sale of goods that would qualify for a reduced or zero VAT rate — items that would normally be zero-rated (e.g., books in the UK) stay zero-rated on resale; the margin scheme is irrelevant. (4) Cross-border B2B intra-EU supplies — these follow distinct intra-EU acquisition rules and often go through reverse charge rather than the margin scheme. The dealer needs a clear written policy on when to apply the scheme and train staff to flag the boundary cases before invoicing.
Cross-border complications post-Brexit
Since 1 January 2021, the GB-EU margin-scheme treatment has changed materially. Used-car dealers in the EU who buy from UK suppliers can no longer use the EU's intra-Community margin-scheme rules — the supplies are now imports from a third country and follow general import-VAT rules. Conversely, UK dealers buying from EU sellers face import customs entries and import VAT (often via PVA) but can still apply the UK margin scheme on resale if the underlying goods qualify. The Northern Ireland Protocol/Windsor Framework adds another wrinkle: NI-established margin-scheme dealers operate under EU rules for goods, so a NI dealer buying a used car from a German dealer applies the EU intra-Community margin-scheme acquisition rules; the same NI dealer buying from a GB dealer applies the GB→NI export-import treatment instead. The dual regime creates real operational complexity for NI-based second-hand goods dealers and is one of the reasons the Windsor Framework introduced specific simplifications for NI traders in 2024.
Frequently asked questions
What's the minimum standard VAT rate in the EU?
Article 97 of the EU VAT Directive sets a 15% minimum standard rate. Luxembourg has the lowest standard rate currently at 17%.
Where can I check a VAT number's validity?
Use the European Commission's VIES portal at ec.europa.eu/taxation_customs/vies for EU numbers, and HMRC's UK VAT checker at gov.uk/check-uk-vat-number for UK numbers.
Which countries have the highest and lowest VAT rates in the EU?
Hungary has the highest standard rate in the EU 27 at 27%; Luxembourg has the lowest at 17%. Outside the EU but in Europe, Switzerland sits at 8.1% (the lowest in Western Europe) and Norway at 25%.
VAT rate snapshot — selected European jurisdictions
| Country | Standard rate | Reduced rate(s) | Notes |
|---|---|---|---|
| United Kingdom | 20% | 5%, 0% | Post-Brexit standalone regime |
| Hungary | 27% | 18%, 5% | EU 27 maximum |
| Luxembourg | 1the prevailing rate | 14%, 8%, 3% | EU 27 minimum |
| Germany | 19% | the relevant percentage | Single reduced rate |
| France | 20% | 10%, 5.the prevailing rate, 2.1% | Super-reduced on pharma |
| Switzerland | 8.1% | 3.8%, 2.6% | Lowest in Western Europe |