The VAT Margin Scheme for Used Phones: How UK and EU Traders Use It

The short answer

The VAT margin scheme charges VAT only on your profit margin, not on the full sale price of a used device. In the UK, HMRC sets the VAT at one-sixth of the margin, which is 16.67 percent. It applies to second-hand goods you bought without any VAT to reclaim, typically from consumers or from another margin seller. If you bought a phone new and reclaimed the input VAT, you cannot use the scheme and must charge VAT on the whole resale price instead.

For anyone trading pre-owned phones in volume, this one rule changes the arithmetic of every lot. A device that has already carried full VAT once, when it was first sold new, would be uncompetitive if it were taxed on its full value again at each resale. The margin scheme fixes that by taxing only the value a trader actually adds. The mechanics are precise, the record-keeping is strict, and the eligibility line is easy to cross by accident, so it pays to understand it before you price stock.

What the margin scheme actually is

The margin scheme is a special VAT accounting method for second-hand goods. Instead of accounting for VAT on the full selling price, you account for it only on the difference between what you paid and what you sold it for.

According to GOV.UK guidance on VAT margin schemes, the scheme taxes the difference between what you paid for an item and what you sold it for, rather than the full selling price, and the rate applied to that margin is 16.67 percent, or one-sixth. The scheme covers second-hand goods, works of art, antiques, and collectors' items. Used phones, tablets, and laptops fall squarely within second-hand goods when they meet the eligibility conditions below.

The purpose is to prevent double taxation. A phone sold new already carried VAT on its full retail price. When that phone is traded in and re-sold, taxing its whole value again would stack VAT on VAT and make used stock artificially expensive. The margin scheme keeps second-hand devices priced against their real added value, which is exactly why the refurbished and used market depends on it.

How the UK scheme works

Three things define the UK mechanics: the one-sixth calculation, the invoicing restriction, and the record-keeping obligation. Miss any one and the scheme can unravel under an HMRC check.

The one-sixth calculation

The calculation is deliberately simple. Take the selling price, subtract the purchase price to get the margin, then divide the margin by six. HMRC's own worked example: buy an eligible item for 1,000 pounds, sell it for 1,300 pounds, and the VAT due is one-sixth of the 300 pound margin, which is 50 pounds. One important limit, confirmed in HMRC guidance summarized by Stripe's overview of the scheme: you cannot reduce the margin by adding repair, valeting, advertising, or overhead costs. Those are real business costs, but they do not lower the margin scheme VAT. And if a device sells at a loss, no VAT is due on it, but you cannot use that loss to offset the VAT on other items.

No VAT on the invoice

Under the margin scheme you cannot show VAT separately on the sales invoice. That is a defining feature, not an oversight. Because there is no separate VAT line, a business buyer has nothing to reclaim, which is why the scheme suits sales to end users or to other margin sellers rather than to VAT-registered buyers looking to recover input tax. This single rule shapes who you sell margin stock to.

Record-keeping

HMRC requires normal VAT records plus a dedicated stock book that tracks each item individually. For each device the stock book records a stock number, a description, the purchase date and price, the seller's name and address, and the sale date and price. You keep purchase and sales invoices alongside it. Records are generally retained for six years, and if unsold stock is older than that, you keep its records until it finally sells. In a high-volume phone operation, this is the single biggest operational burden of the scheme.

A worked example

The table below shows the scheme running item by item across four used phones bought from consumers, so no input VAT was reclaimable. VAT is the margin divided by six, and the loss-making unit carries no VAT.

Notice what the loss on Unit C does, and does not, do. No VAT is due on it because the margin is negative, but under item-by-item accounting that loss cannot be netted against the gains on the other three units. That asymmetry is one reason high-volume, low-value sellers look at the global accounting option below.

Global accounting versus item-by-item

The standard margin scheme is accounted for item by item, which fits higher-value devices you can track individually. For high-volume, low-price stock, HMRC offers a simplified variant called the Global Accounting Scheme.

GOV.UK describes the Global Accounting Scheme as a simplified version of the margin scheme for high volume, low price items. Rather than calculating VAT on each individual device, you calculate it on the total margin across a period: total eligible purchases against total eligible sales. That removes the need to match every sale to a specific purchase, and it lets a period's losses sit inside the same pool as its gains. The trade-off is that some higher-value goods are excluded from global accounting and must stay on the item-by-item scheme, so many used-phone traders run both in parallel. Confirm which of your stock qualifies before choosing, because the eligibility rules differ between the two.

The EU second-hand goods margin scheme

The EU runs its own margin scheme for second-hand goods, and understanding how the two systems meet is essential for any trader moving used phones across the UK and EU border.

The EU margin scheme is set out in the VAT Directive 2006/112/EC, at Articles 312 to 325, and it works on the same principle: a taxable dealer accounts for VAT on the margin rather than the full price of eligible second-hand goods. The European Commission's guidance on VAT special schemes confirms the second-hand goods scheme as one of the special arrangements, designed to prevent double taxation and distortion of competition. Crucially, an intra-Community acquisition of second-hand goods is not taxed again on arrival where the vendor is a taxable dealer who applied the margin scheme in the country the goods came from. That is what keeps a margin-scheme phone from being taxed twice as it moves between member states.

Cross-border treatment is where the detail bites. Rates, registration, and the exact interaction between schemes vary by country, and post-Brexit the UK and EU are separate VAT territories, so a used phone crossing that border is an import or export rather than an intra-Community movement. The core principle holds, tax the margin and avoid double taxation, but the paperwork and the recovery position differ, which is the next section's warning.

When you must NOT use the margin scheme

The scheme is only for goods you bought without recoverable input VAT. Try to use it on the wrong stock and the VAT is due on the full price, plus penalties.

• Goods bought on a normal VAT invoice. If you were charged VAT and reclaimed it, that device is not eligible. Selling it under the margin scheme understates the VAT due.
• Precious metals, investment gold, and precious stones. GOV.UK lists these as excluded from the scheme.
• Stock you cannot evidence. Without a stock book entry and a purchase record, HMRC can refuse margin treatment and assess VAT on the full selling price.
• Mixed lots without separation. If a batch contains both margin-eligible and standard-rated devices, they must be accounted for separately, not blended.

Common mistakes in used-phone flows

• Mixing schemes. Running margin-eligible and normal-scheme stock through the same calculation is the most common error. Each device must sit in the right scheme based on how it was bought.
• Adding costs to reduce the margin. Repairs, testing, and refurbishment do not lower margin-scheme VAT, even though they lower your real profit.
• Showing VAT on a margin invoice. Adding a VAT line to a margin sale breaks the scheme and can hand a buyer an invalid reclaim.
• Exporting margin goods without checking treatment. Moving margin stock across a border can change the VAT position entirely, and the intra-EU relief does not extend to non-EU movements.
• Weak stock books. An incomplete or reconstructed-after-the-fact stock book is the fastest way to lose margin treatment in a VAT inspection.

Why this matters in wholesale used-phone flows

In wholesale used phones, margins are measured in single-digit percentages and a handful of pounds per unit. On a stack of hundreds of devices, the difference between margin-scheme VAT and full-price VAT is the difference between a viable trade and a losing one.

Because the scheme touches purchase sourcing, invoicing, and who you can sell to without them losing a reclaim, it shapes the whole flow of a used-phone business, not just the tax return. A trader who buys consumer trade-ins and sells graded lots to other dealers has to know, for every unit, which scheme it belongs in and how that affects the counterparty. That is why experienced traders treat VAT treatment as a term of the deal, alongside grade, quantity, and price, and confirm it before agreeing anything. When you read a wholesale offer, the VAT basis is part of what the number really means. Our guides on the B2B used-electronics wholesale market and UK wholesale electronics after Brexit cover the surrounding flow, and the telegraphic transfer glossary entry explains how these deals are usually settled.

For cross-border used-phone traders, the mechanics compound. A lot bought under an EU margin scheme, moved to the UK, and resold carries a different VAT position than the same lot sold domestically, which is why routes matter. Our overview of wholesale electronics across Poland and the Netherlands and the guide to import and export regulations by region map the corridors where these questions come up most.