VAT margin schemes

The VAT margin scheme, without the spreadsheet

Second-hand dealers only pay VAT on the margin — the gap between what they paid and what they sold for. OneSixth works that out per item, keeps a compliant stock book, and posts the right VAT to your ledger, so you never account for VAT on the full selling price by mistake.

Used cars & motor trade
Antiques, art & collectables
General second-hand goods
Global accounting scheme

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Why margin schemes break the ledger

None of the major cloud platforms calculate the VAT margin scheme natively. The standard workaround is a custom tax code plus a spreadsheet stock book kept outside the ledger — and it breaks exactly where the money is: part-exchange values, stock-book reconciliation, and the global accounting variant for high-volume, low-value stock. Get the stock book wrong and HMRC can refuse the scheme and charge VAT on the full sale, not the margin.

How is VAT on used cars and second-hand goods calculated?

Under a VAT margin scheme you account for VAT only on the difference between the purchase price and the selling price. At the 20% standard rate the VAT due is one-sixth of the margin. Because most second-hand stock is bought from private individuals — with no VAT to reclaim — the margin scheme is usually far more favourable than charging VAT on the whole sale price. It applies to eligible second-hand goods, works of art, antiques and collectors' items, including motor vehicles.

Do you pay VAT on second-hand cars?

Yes, but usually only on the dealer's margin, not the full price — provided the car is eligible and the dealer keeps a compliant stock book. You cannot use the margin scheme where you were charged VAT on purchase (for example a VAT-qualifying car bought with a VAT invoice), or for excluded items such as investment gold. OneSixth flags ineligible stock so you don't apply the scheme where it doesn't belong.

The stock book, done properly

The scheme requires a detailed stock book recording each item's purchase and sale, with the margin worked out per item. OneSixth keeps that stock book digitally alongside your ledger, captures part-exchange values as the purchase price for the eventual resale, and reconciles every sale back to the journal — preserving the MTD digital link the spreadsheet approach quietly breaks.

Global accounting for high-volume stock

For high-volume, low-value second-hand goods, the global accounting scheme lets you calculate VAT on the total margin across a period rather than item by item. OneSixth supports it — including negative-margin carry-forward and closing-stock rules — for dealers who can't realistically track every individual item but still need to stay compliant.

How OneSixth handles it

Connect your ledger

Link Xero, QuickBooks Online, Sage or FreeAgent. OneSixth reads your purchases and sales — it doesn't replace your accounting system.

Keep the stock book

Each vehicle or item is tracked from purchase to sale, with part-exchange values handled correctly and eligibility checked.

Post the margin VAT

OneSixth calculates one-sixth of the margin and posts a reviewable journal to the right VAT boxes — Box 1 and Box 6, never Box 8 or 9.

Works alongside your ledger

OneSixth connects to Xero, QuickBooks Online, Sage and FreeAgent — it calculates the VAT and posts a reviewable journal, it doesn't replace your accounting system.

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Common questions

What is a VAT margin scheme?

It lets a second-hand dealer account for VAT only on the difference between buying and selling price, not the full sale — valuable because most second-hand stock is bought from private individuals with no VAT to reclaim. At 20% the VAT is one-sixth of the margin.

Do you pay VAT on used cars under the margin scheme?

You pay VAT on the margin — the difference between what you paid and what you sold the car for — not on the full selling price, provided the car is eligible and you keep a compliant stock book. Cars bought with a VAT invoice (VAT-qualifying) fall outside the scheme.

Do I have to keep a stock book?

Yes. The scheme requires a detailed stock book recording each item's purchase and sale with the margin worked out per item. Without a compliant stock book HMRC can refuse the scheme and charge VAT on the full selling price. OneSixth keeps this stock book digitally.

What is the global accounting scheme?

A simplified margin scheme for high-volume, low-value second-hand goods, where VAT is calculated on the total margin across a period rather than item by item. It suits dealers who can't track individual items but can't be used for higher-value goods such as cars.

Can Xero, QuickBooks, Sage or FreeAgent do margin schemes?

None of them calculate the margin scheme natively — the standard route is a custom tax code plus a spreadsheet stock book. OneSixth runs the calculation and stock book alongside the ledger and posts the journal for you.

Go deeper

Guide

Margin schemes without the spreadsheet

Free 5-page guide for motor traders and second-hand dealers.

Reading

The VAT margin scheme for used cars

How the margin scheme works in practice for the motor trade.

Product

See OneSixth pricing

Plans for dealers and the accountants who support them.