VAT Margin Scheme vs Global Accounting: a worked example for second-hand dealers
Under UK VAT law, a second-hand goods dealer doesn't have to charge VAT on the full selling price of stock it buys from private individuals and other non-VAT-registered sellers. Instead, under HMRC's VAT Margin Scheme or Global Accounting Scheme (current guidance as of 2026, replacing the since-withdrawn VAT Notice 718), it pays VAT only on its profit margin. Plenty of pages explain each scheme's formula with one item plugged in. What's harder to find is what happens across a real quarter's mixed stock, where some items sell at a profit and others at a loss, and the two schemes treat those losses completely differently. Below is one dealer's quarter, worked out both ways, with every figure traceable back to HMRC's own rules.
The standard Margin Scheme: item by item, losses wasted
Under the standard Margin Scheme, VAT is due on the margin for each individual item: selling price minus purchase price. At the UK's 20% standard rate, VAT due is the margin multiplied by the VAT fraction of 1/6 (not 20%, because the margin is treated as VAT-inclusive). So an item bought for £120 and sold for £300 has a margin of £180, and VAT due is £180 ÷ 6 = £30.
The rule that catches people out: if an item sells for less than it cost, HMRC's guidance is explicit that you must not offset any VAT on goods sold at a loss against VAT on goods sold at a profit. A loss-making item simply generates £0 VAT — it does not create a credit, and it cannot reduce the VAT owed on a different item sold the same quarter. Every item is its own self-contained calculation.
The standard scheme also carries the heavier paperwork: a detailed stock book recording each item's purchase, stock number, and sale, plus purchase and sales invoices that must not show VAT separately.
Global Accounting: pooled margins, losses included
Global Accounting is an alternative for dealers in lower-value stock. Two eligibility rules matter before you can use it on an item:
- The item's purchase price must not exceed £500.
- Certain goods are excluded outright, regardless of price: motor vehicles (including motorcycles), aircraft, boats and outboard motors, caravans and motor caravans, and horses and ponies. These must always go through the standard Margin Scheme instead.
Where an item qualifies, Global Accounting doesn't calculate a margin item by item. Instead, for each VAT period you add up total eligible purchases and total eligible sales, and VAT is due on the difference: (total sales − total purchases) ÷ 6. Because the calculation is done on the pool as a whole, a loss on one item in the pool directly reduces the taxable margin on the others — the exact offsetting the standard scheme forbids. If the pool's total purchases exceed total sales in a period, HMRC's guidance confirms the result is a negative margin: no VAT is due that period, and the negative amount is carried forward to reduce the following period's pooled margin, rather than being lost. Record-keeping is also lighter: no stock book is required, just summary totals of eligible purchases and sales.
A dealer can run both schemes side by side in the same VAT return — Global Accounting for eligible low-value stock, and the standard scheme for whatever is excluded or priced above £500 — but the two methods cannot both be applied to the same item.
One dealer's quarter, worked both ways
Riverside Reclaim is a VAT-registered second-hand dealer. In one VAT quarter it buys and sells six items, all from non-VAT-registered sellers with no VAT shown on the purchase invoices:
| Item | Bought for | Sold for | Margin | Global Accounting eligible? |
|---|---|---|---|---|
| Vintage dresser | £120 | £300 | +£180 | Yes (≤£500) |
| Box of vinyl records | £80 | £40 | −£40 | Yes (≤£500) |
| Office chair | £200 | £150 | −£50 | Yes (≤£500) |
| Antique mirror | £450 | £600 | +£150 | Yes (≤£500) |
| Motorcycle | £1,200 | £1,500 | +£300 | No — excluded category |
| Vintage car | £600 | £550 | −£50 | No — excluded category, and over £500 |
The motorcycle and the car are never eligible for Global Accounting, regardless of price, so they must go through the standard Margin Scheme either way: VAT of £300 ÷ 6 = £50 on the motorcycle, and £0 on the car's £50 loss. That's a fixed £50 of VAT on those two items under either approach.
If Riverside Reclaim ran the other four items (the dresser, records, chair, and mirror) through the standard Margin Scheme individually:
- Dresser: +£180 margin → £180 ÷ 6 = £30 VAT
- Records: −£40 margin → £0 VAT (loss wasted, no offset allowed)
- Chair: −£50 margin → £0 VAT (loss wasted)
- Mirror: +£150 margin → £150 ÷ 6 = £25 VAT
That's £30 + £0 + £0 + £25 = £55 VAT on those four items, plus the fixed £50 on the motorcycle/car pair, for a total quarterly VAT bill of £105.
If Riverside Reclaim instead puts those same four eligible items through Global Accounting: total eligible purchases are £120 + £80 + £200 + £450 = £850, and total eligible sales are £300 + £40 + £150 + £600 = £1,090. The pooled margin is £1,090 − £850 = £240, so VAT due is £240 ÷ 6 = £40. Add the fixed £50 on the motorcycle and car, and the total quarterly VAT bill is £90.
Global Accounting saves Riverside Reclaim exactly £15 this quarter — no more, no less. That figure isn't arbitrary: the records and chair together lost £90 (£40 + £50) that the standard scheme simply discards. Under Global Accounting, that same £90 of losses directly reduces the pooled margin, and at the 1/6 VAT fraction, £90 of extra deductible loss is worth precisely £90 ÷ 6 = £15 of VAT saved. Whenever a dealer's eligible stock mixes genuine losses with profits in the same period, Global Accounting will save exactly one-sixth of the net losses that the standard scheme would otherwise waste — and if eligible sales fall short of eligible purchases for the whole pool, the shortfall simply carries forward instead of disappearing.
This is educational material based on current HMRC guidance, not professional tax advice — a dealer choosing between the two schemes for live VAT returns should confirm eligibility and figures with HMRC's current guidance on the VAT Margin Scheme and Global Accounting Scheme, or an accountant. For more on how these rules interact with VAT registration, invoicing, and penalties, see PassDrill's UK VAT practice questions, which cover the Margin Scheme and Global Accounting eligibility rules individually.
Source: HMRC, "VAT Margin Schemes" and "Using the Global Accounting VAT Margin Scheme" (gov.uk), current guidance as of 2026, replacing the withdrawn VAT Notice 718.