On a £2,000 net sale at 5%, VAT due is about £100.00 and the customer pays £2,100.00.
5% on qualifying supplies (e.g. children’s car seats, home energy when conditions apply).
Reduced rate 5% — only listed qualifying goods/services (GOV.UK VAT rates).
On a £2,000 net sale at 5%, VAT due is about £100.00 and the customer pays £2,100.00.
Net sale £2,000.00 at 5%.
VAT £100.00; customer pays £2,100.00.
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.
Rank
#3
VAT due
£100.00
Customer pays
£2,100.00
Rate
5%
Effective 5.00% on sale. 5% on qualifying supplies (e.g. children’s car seats, home energy when conditions apply).
| Sale | VAT due | Customer pays |
|---|---|---|
| £100 | £5.00 | £105.00 |
| £500 | £25.00 | £525.00 |
| £1,000 | £50.00 | £1,050.00 |
| £2,000 | £100.00 | £2,100.00 |
| £5,000 | £250.00 | £5,250.00 |
| £10,000 | £500.00 | £10,500.00 |
“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.
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 is a 0% taxable supply. Exempt is a different VAT treatment — do not mix them when reclaiming input VAT.
VAT due ÷ sale. For margin on £2,000 that is ~4.17%, even though the scheme rate is one-sixth of the margin.
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.
Wrongly charging 5% or 0% on a standard-rated service creates HMRC risk — check GOV.UK rate lists for the goods/services.
Keep buy/sell records. If requirements are not met, GOV.UK says you pay VAT on the full selling price.
Taxable turnover more than £90,000, or expected to exceed it, means you must register (GOV.UK).
Flat Rate changes the percentage of turnover you pay — it is not one of this hub’s four rate/margin vignettes.
GOV.UK cannot give tax-planning advice on these pages; neither can this hub. Complex trades need an accountant.
By Sammy S. · Founder · AuthorUpdated for 2026