How does the VAT margin scheme work for used phones?

This guide explains HMRC’s published guidance in plain English. It isn’t tax advice: check your own position with your accountant or HMRC.

What is the VAT margin scheme?

It’s an optional way for a VAT-registered business to account for VAT on second-hand goods. Instead of VAT on the full selling price, you pay VAT on your margin: the selling price minus what you paid. HMRC puts the VAT at 16.67%, one-sixth of the margin.

For example, a phone bought for £200 and sold for £320 has a margin of £120. The VAT due is one-sixth of £120: £20.

Which phones qualify?

Phones you bought without VAT being charged to you: typically from members of the public, or from businesses that sold them to you under a margin scheme themselves. HMRC’s guidance says you can’t use a margin scheme for an item you were charged VAT on.

If you can’t meet the scheme’s rules for a phone, HMRC says you pay VAT on its full selling price.

What records does HMRC ask for?

A stock book that tracks each phone on its own, with:

• a stock number, in sequence;
• the purchase date and the sale date;
• the purchase invoice number (unless you wrote the purchase invoice yourself) and the sales invoice number;
• the purchase price, and the selling price or how you disposed of it;
• the seller’s name and the buyer’s name;
• a description of the phone;
• the margin on the sale;
• the VAT due, one-sixth of the margin.

HMRC says to keep VAT records for six years, and to keep the records for older stock until you sell it.

What goes on the sales invoice?

Your name, address and VAT number, the buyer’s name and address, the invoice number and date, the phone’s stock book number, a description and the total price. You must not show VAT separately, and the invoice must say “margin scheme - second hand goods”.

What can’t go in the margin?

HMRC says repairs, parts and overheads can’t be included in the margin calculation. You reclaim the VAT on those in the normal way.

How Fixory helps

Fixory has an optional VAT margin scheme for second-hand phones. It keeps a stock book of each phone bought in and sold, works out the VAT on the margin and never shows VAT on the customer’s receipt. You can record the work done to get a traded-in phone ready for sale; it counts in your profit reports, while the stock book keeps the price paid.

You can export your sales, refunds, payments, stock book and takings for your accountant as Excel, CSV or a printable PDF. If you’re not VAT-registered yet, administrators can see your turnover over the last 12 months against the VAT registration threshold. Fixory doesn’t work out VAT return figures or send returns to HMRC.