How to calculate margin scheme VAT: 4 examples
How to calculate margin scheme VAT, with four worked examples for used devices: a normal sale, a repaired unit, a loss and a VAT-paid purchase.
How to calculate margin scheme VAT, in one line: take the selling price, subtract what you paid for that item, and the VAT is one sixth of the difference (official guidance). This post works that through for four cases a repair or phone shop meets every week. The VAT margin scheme guide explains the rules behind it, and the margin calculator does the sum for your own figures.
The formula
- Margin = selling price − purchase price of that item
- VAT = margin ÷ 6
Why one sixth? The standard rate of VAT is 20% (official guidance), and 20% is added to a price without VAT. The margin already has the VAT inside it, and the VAT inside a VAT-inclusive amount is 20/120 of it, which is one sixth. GOV.UK states the result as "16.67% (one-sixth) on the difference" (official guidance).
Example 1: a used phone bought from the public
Bought for £180, sold for £240.
- Margin: £240 − £180 = £60
- VAT: £60 ÷ 6 = £10.00
- Kept after VAT: £50.00
Example 2: you repaired it before selling
The same phone needed a £40 screen before it could be sold. The screen does not go into the margin: you cannot include repairs, parts or accessories in margin calculations, and you reclaim the VAT on them on your VAT return in the normal way instead (official guidance).
- Margin: still £60
- VAT: still £10.00
- What you keep: £50.00 − £40.00 = £10.00
Example 3: sold for less than you paid
A laptop bought for £300 sells for £260. There is no difference to tax, so there is no VAT due on that sale: the scheme taxes "the difference between what you paid for an item and what you sold it for" (official guidance), and here there is none.
One caveat. The clearest statement of the loss rule was in a notice that was withdrawn on 23 December 2021. The result above follows from the definition, but check with your accountant before relying on it.
Example 4: bought with VAT on the invoice
A tablet bought from a trade supplier whose invoice showed VAT cannot go through the margin scheme at all: it cannot be used for "any item you bought for which you were charged VAT" (official guidance). You sell it with VAT on the full price in the normal way. Sold for £240, the VAT inside that price is £240 ÷ 6 = £40.00. Which items qualify is set out in when does the margin scheme apply.
Is 20% margin the same as 25% markup?
Yes, and that is arithmetic rather than a tax rule. Margin is profit as a share of the selling price; markup is profit as a share of the cost. A £20 profit on an £80 cost is a 25% markup and, on the £100 selling price, a 20% margin.
Where the numbers go
The invoice for a margin sale shows the total only, and the VAT stays in your records: see what a margin scheme VAT invoice must show.
Where SlickCell fits
Second-hand stock can be taxed on the margin between what you paid for that unit and what you sold it for, reported separately from standard-rated sales. Because every device carries its own purchase cost, the per-item record the margin scheme asks for is already there. See how used-device stock is costed per unit.
General information, not tax advice. Check the published guidance or speak to your accountant. Rules on this page were checked against the published guidance on 25 September 2026.