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MARGIN · rank #2

🇬🇧Margin scheme

About £83.33 VAT on £2,000 (margin scheme; buy £1,500).

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Margin scheme on £2,000

On a £2,000 sale (buy £1,500), the margin scheme models about £83.33 VAT (one-sixth of the £500.00 margin).

Key takeaways

  • Margin scheme: ≈ £83.33 VAT on £2,000 (margin scheme; buy £1,500).
  • Rank #2 of 4 on £2,000 (lowest VAT first).
  • GOV.UK: pay VAT at 16.67% (one-sixth) on (sell − buy). Not for items you were charged VAT on when buying.
  • Compare with: Zero rate, Reduced 5%, Standard 20%.

Margin scheme — overview

VAT on the profit margin only (second-hand goods, art, antiques, collectors’ items when eligible).

GOV.UK: pay VAT at 16.67% (one-sixth) on (sell − buy). Not for items you were charged VAT on when buying.

On a £2,000 sale (buy £1,500), the margin scheme models about £83.33 VAT (one-sixth of the £500.00 margin).

Headline maths on £2,000

Buy £1,500.00; sell £2,000.00.

Margin £500.00 → VAT £83.33 (÷ 6).

Effective on sell price 4.17%.

Sale ladder

The ladder recomputes the same scenario from £100 to £10,000.

Margin rows keep a 75% cost ratio (same as £1,500 / £2,000) so the one-sixth rule scales.

Official rules for this scenario

VAT rates

  • Standard 20% — most goods and services (since 4 January 2011)
  • Reduced 5% — some goods and services (e.g. children’s car seats, home energy)
  • Zero 0% — e.g. most food and children’s clothes
  • Some supplies are exempt (e.g. postage stamps, many financial and property transactions)

GOV.UK — VAT rates →

VAT margin schemes

  • VAT on (sell − buy) at 16.67% (one-sixth)
  • Eligible: second-hand goods, works of art, antiques, collectors’ items
  • Not for items bought with VAT charged, precious metals, investment gold, precious stones
  • GOV.UK example: buy £1,500 / sell £2,000 → VAT £83.33

GOV.UK — VAT margin schemes →

Starting a margin scheme

  • Start by keeping the correct records and reporting on your VAT return
  • You do not have to register separately for the scheme
  • If you do not meet all requirements, VAT is due on the full selling price

GOV.UK — VAT margin schemes →

Scoreboard (£2,000)

Rank

#2

VAT due

£83.33

Customer pays

£2,000.00

Margin

£500.00

Effective 4.17% on sale. VAT on the profit margin only (second-hand goods, art, antiques, collectors’ items when eligible).

Open calculatorAll VAT scenarios

Sale ladder — Margin

SaleBuyVAT dueCustomer pays
£100£75.00£4.17£100.00
£500£375.00£20.83£500.00
£1,000£750.00£41.67£1,000.00
£2,000£1,500.00£83.33£2,000.00
£5,000£3,750.00£208.33£5,000.00
£10,000£7,500.00£416.67£10,000.00

Compare with other scenarios

Margin vs Zero rate

£83.33 vs £0.00 on £2,000

Open compare →

Margin vs Reduced 5%

£83.33 vs £100.00 on £2,000

Open compare →

Margin vs Standard 20%

£83.33 vs £400.00 on £2,000

Open compare →

Standard 20% vs MarginReduced 5% vs MarginZero rate vs Margin

Myths vs facts

“Zero-rated means the same as exempt.”

Zero-rated supplies are taxable at 0% (input VAT often reclaimable). Exempt supplies are outside VAT in a different way and usually block related input recovery (GOV.UK).

“Margin scheme VAT is 20% of the full selling price.”

GOV.UK: you pay one-sixth of the profit margin. On buy £1,500 / sell £2,000 that is £83.33, not £400.00.

“Every freelancer can use the margin scheme.”

Margin schemes cover second-hand goods, works of art, antiques and collectors’ items (with exceptions). Typical service invoices use the standard rate once registered.

“You can use the margin scheme on goods you bought with VAT.”

GOV.UK: you cannot use a margin scheme for any item you bought for which you were charged VAT (also not for precious metals, investment gold, precious stones).

“Reduced rate applies to all household spending.”

Only listed qualifying supplies (e.g. children’s car seats, domestic fuel/power when conditions apply). Most services stay at 20%.

“VAT registration is optional above £90,000.”

GOV.UK: if taxable turnover is more than £90,000, or you expect it to go over, you must register.

Concepts

Net sale vs customer pays

Rate scenarios add VAT to a net amount. Customer pays = net + VAT. Margin vignettes treat the sell price as the scheme selling price (VAT embedded via one-sixth of margin).

Zero-rated vs exempt

Zero-rated is a 0% taxable supply. Exempt is a different VAT treatment — do not mix them when reclaiming input VAT.

Effective on sale

VAT due ÷ sale. For margin on £2,000 that is ~4.17%, even though the scheme rate is one-sixth of the margin.

Why margin can beat reduced on this vignette

With a 25% margin (£500 on £2,000), one-sixth ≈ £83.33 — less than 5% of £2,000 (£100.00). Different buy/sell spreads change the ranking.

Planning notes (education, not advice)

Charge the rate that matches the supply

Wrongly charging 5% or 0% on a standard-rated service creates HMRC risk — check GOV.UK rate lists for the goods/services.

Margin scheme needs eligible goods + records

Keep buy/sell records. If requirements are not met, GOV.UK says you pay VAT on the full selling price.

Watch the £90k registration line

Taxable turnover more than £90,000, or expected to exceed it, means you must register (GOV.UK).

Flat Rate is a different decision

Flat Rate changes the percentage of turnover you pay — it is not one of this hub’s four rate/margin vignettes.

This is education, not advice

GOV.UK cannot give tax-planning advice on these pages; neither can this hub. Complex trades need an accountant.

Glossary

Standard rate
20% — most goods and services (GOV.UK VAT rates; 20% since 4 January 2011).
Reduced rate
5% — some goods and services (e.g. children’s car seats, home energy).
Zero rate
0% — zero-rated taxable supplies (e.g. most food, children’s clothes). Input VAT often reclaimable if registered.
Exempt
Outside the rate table (e.g. many financial services, postage stamps). Different from zero-rated — exemption usually blocks input VAT recovery on related costs.
Margin scheme
VAT on (sell − buy) at one-sixth (16.67%) for eligible second-hand goods, art, antiques, collectors’ items (GOV.UK VAT margin schemes).
Taxable turnover
Total value of everything you sell that is not exempt — used for the registration threshold (GOV.UK VAT thresholds).
Registration threshold
More than £90,000 (or expected to exceed it) — you must register for VAT (GOV.UK).
Deregistration threshold
Less than £88,000 — you may cancel registration (optional).
Flat Rate Scheme
Simplified percentage of turnover for eligible small businesses (join at £150,000 or less) — not modelled on this hub’s vignettes.
Effective on sale
VAT due ÷ sale amount on the vignette (not always the headline rate %).

FAQ — Margin

About £83.33 (effective 4.17% on the sale amount).

Buy £1,500; sell £2,000; VAT = margin ÷ 6.

Rank #2 of 4 by VAT due ascending on the headline vignette.

Yes — buy £1,500 / sell £2,000 → VAT £83.33.

Margin vs Zero rate; Margin vs Reduced 5%; Margin vs Standard 20%.

Open /vat-calculator/uk and enter your amount and rate.

Validation notes

  • £100 net @ 20% → VAT £20.00, gross £120.00 (calculateVatUk add).
  • £100 net @ 5% → VAT £5.00, gross £105.00.
  • £100 net @ 0% → VAT £0.00.
  • Margin buy £1,500 / sell £2,000 → margin £500 → VAT £83.33 (GOV.UK VAT margin schemes example; one-sixth).
  • Headline £2,000: zero £0 · margin £83.33 · reduced £100 · standard £400.
  • Standard rate 20% since 4 January 2011; reduced 5%; zero 0% (GOV.UK VAT rates).
  • Registration: more than £90,000 or expect to exceed; optional cancel below £88,000.
  • All rate figures call calculateVatUk; margin calls calculateVatUkMarginScheme.

Personalize in the UK VAT calculator.

By Sammy S. · Founder · AuthorUpdated for 2026