VAT margin scheme for used devices: how it works
A SlickCell guide to the VAT margin scheme on used phones, laptops and consoles: one sixth of the margin, a worked example, the records needed.
The VAT margin scheme lets a VAT-registered business pay VAT on the difference between what it paid for a second-hand item and what it sold it for, rather than on the full selling price. For a shop that buys used phones, laptops, tablets and games consoles from the public, it is usually the difference between a £10 VAT bill and a £40 one.
Buy a used phone from a member of the public for £180 and sell it for £240, and you do not owe VAT on £240. You owe it on the £60 margin, and not even 20% of that: one sixth, which is £10.00.
That is the whole scheme in two sentences. Almost every part of it has a condition attached, and this guide goes through each one with HMRC's own wording and the same worked numbers.
What is the VAT margin scheme?
HMRC's description is short: VAT margin schemes "tax the difference between what you paid for an item and what you sold it for, rather than the full selling price. You pay VAT at 16.67% (one-sixth) on the difference." (HMRC guidance on GOV.UK)
So on that phone:
- Margin: £240 − £180 = £60
- VAT: £60 ÷ 6 = £10.00
- Yours: £50.00
Without the scheme, VAT on the full £240 selling price would be £40.00. That gap is why the scheme exists: you bought the phone from someone who was not VAT registered, so there was no VAT to reclaim on the way in, and charging VAT on the entire sale price would tax value that was never yours.
Which goods qualify: phones, laptops, consoles and other second-hand electronics
The scheme covers second-hand goods, works of art, antiques and collectors' items. HMRC defines second-hand goods as "goods that can still be used, or which could be used after repair" (HMRC guidance on GOV.UK), which takes in every used phone, laptop, tablet, games console and smartwatch a shop buys to sell on, whether it works yet or needs a repair first.
A used device bought from a member of the public is the ordinary case. What rules an item out is how you bought it, not what it is: if you were charged VAT on the purchase, the scheme does not apply to that item (mistake 1 below). Is there VAT on refurbished phones? works through the phone a shop buys, fixes and sells.
How to calculate VAT under the margin scheme
This is the single most common error, and it always goes the same way: the shop overpays.
The standard rate of UK VAT is 20% (GOV.UK VAT rates). But 20% is what you add to a price that does not yet include VAT. The margin is not that kind of number. The £60 is money that has already come out of a customer's pocket, so the VAT is already inside it.
To pull VAT out of a VAT-inclusive amount you take one sixth, because 20/120 = 1/6:
| 20% of the margin | One sixth of the margin | |
|---|---|---|
| £60 margin | £12.00 | £10.00 |
| £150 margin | £30.00 | £25.00 |
| £400 margin | £80.00 | £66.67 |
At a £60 margin that is £2.00 overpaid on every sale. Forty sales a month is £960 a year that nobody asked you to pay.
You can put your own figures through the VAT margin calculator, which shows the working rather than just the answer, or see four cases worked in full in how to calculate margin scheme VAT.
Is there VAT on second-hand goods?
Yes, if the seller is VAT-registered, but under the margin scheme only on the margin. A private seller charges no VAT at all; a VAT-registered shop selling a second-hand device either pays one sixth of its margin under the scheme or charges VAT on the full price in the normal way. More on that in VAT on second hand goods.
Four VAT margin scheme mistakes that cost shops the scheme
The arithmetic is easy. The conditions are where the money goes.
1. You were charged VAT when you bought it
If the item came to you on an invoice showing a separate VAT amount, it is not eligible for the margin scheme. You reclaim that VAT as input tax and sell the item under normal VAT rules instead.
In practice this is the line between the two halves of a lot of shops' stock: devices bought from the public go through the margin scheme, and stock bought from a VAT-registered trade supplier generally does not. They cannot be treated the same way, which means the decision has to be recorded per item at the point it arrives: not reconstructed at quarter end. The whole check is in when does the margin scheme apply.
2. You added the repair cost to the purchase price
This is the one that catches repair shops specifically, because it feels obviously fair. You paid £180 for the phone, then £40 on a screen to make it sellable. Surely your cost is £220?
For the margin scheme, no. HMRC is explicit that you cannot include business overheads, repairs, or parts and accessories in margin calculations (HMRC guidance on GOV.UK). The margin is still £60, and the VAT is still £10.00. The VAT on that screen comes back to you a different way, covered under claiming VAT back below.
It does change what you keep, of course: £50.00 of margin after VAT, minus £40 of parts, is £10.00 in your pocket. Which is worth knowing before you price the next one.
3. Your invoice showed the VAT
A margin scheme sales invoice shows the total price and must not show VAT separately (HMRC guidance on GOV.UK).
This is a paperwork rule with a real cost attached, and tills cause it. A system configured to print a VAT breakdown on every receipt will happily print one on a margin-scheme sale, and that document is then wrong. It is worth actually looking at what your receipts say on a used-device sale rather than assuming. What the invoice must carry is in what a margin scheme VAT invoice must show.
4. Your records will not support it
The scheme requires a stockbook that tracks each item sold under it individually, plus copies of purchase and sales invoices for all of them (HMRC guidance on GOV.UK).
"Individually" is the important word. This is a per-item scheme: the VAT on a sale depends on what that specific device cost you. Four iPhone 13s bought at four different prices, or three identical laptops bought at three prices, are that many different margins, and a single line in a spreadsheet reading "iPhone 13 ×4" cannot tell you any of them.
If the requirements are not met, VAT is due on the full selling price of each item rather than the margin (HMRC guidance on GOV.UK). That is the £40 outcome instead of the £10 one: not a penalty, just the scheme not applying.
What happens when you sell at a loss
Sometimes a device does not move and you take what you can get. If you sell it for less than you paid, there is no margin, so there is nothing to tax on that sale.
What you cannot do is set that loss against the margin on a different item. Under the standard margin scheme each sale stands on its own. A separate arrangement called global accounting works differently and pools the figures, but it is a different scheme with its own conditions: not something you drift into by accident.
One honest caveat on this section: the clearest statement of the loss rule appeared in a notice that was withdrawn on 23 December 2021. It follows from the definition anyway, a sale at or below cost produces no difference to tax, but we would rather flag that than quote a withdrawn notice at you as though it were current guidance.
Can you claim VAT back under the margin scheme?
Not on the item itself: no VAT was charged when you bought it, so there is nothing to reclaim. Where you were charged VAT on parts or repairs to make that item sellable, you reclaim it on your VAT return in the normal way. The relief comes back to you through a different door, not by shrinking the margin.
Keeping a margin scheme record for every device
None of the above is difficult on one sale. Anyone can do £240 − £180 ÷ 6.
It gets hard because the margin scheme is per item, and a shop is not. Stock arrives from three or four different routes, some of it eligible and some not. Devices sit for weeks. Somebody takes a trade-in on a Saturday. By the time the return is due, the question "what did this specific phone cost us?" needs an answer for every device that left the shop that quarter, and if the answer lives in someone's memory, or in a quantity count that says "iPhone 13 ×4", it is not really an answer.
That is the actual work: keeping a cost against every individual device from the day it arrives to the day it leaves. How a shop does that (spreadsheet, stockbook, or software) matters less than that it does it at all.
In SlickCell this is how stock already works.
Does SlickCell support the VAT margin scheme for used phones? Yes. Tax is a rule you configure, and margin is one of the rule types, scoped to used stock. Each device carries its own purchase cost, so the margin on every sale is worked out from that unit, and margin-taxed sales are reported separately from standard-rated ones.
See how used-device stock is costed per unit.
General information, not tax advice. Check HMRC guidance on GOV.UK or speak to your accountant about your circumstances. Figures and rules on this page were checked against the published guidance on 24 September 2026.