The VAT margin scheme for used car parts, explained.

Finance · June 2026 · 6 min read

If you sell second-hand goods, the VAT margin scheme can mean paying VAT only on your profit, not the full selling price. For used-parts sellers, that’s worth understanding properly.

What the margin scheme is

Normally, a VAT-registered business charges VAT on the full sale price of what it sells. The VAT margin scheme works differently for eligible second-hand goods: you pay VAT only on the difference between what you paid for an item and what you sell it for — your margin. The VAT due is one-sixth of the margin (16.67%).

For example, if you buy an eligible item for £1,000 and sell it for £1,300, your margin is £300 and the VAT due is one-sixth of that — £50. If you’d charged VAT on the full £1,300 the usual way, the figure would be much higher.

When you can use it

The scheme is designed for second-hand goods bought in circumstances where you couldn’t reclaim VAT — for instance, stock bought from private individuals or non-VAT-registered sellers. If you bought an item and reclaimed VAT on it, it generally can’t go through the margin scheme. The goods must genuinely be second-hand.

What you can’t fold in

A common misunderstanding: you can’t add business overheads, repair costs, parts or accessories into a margin-scheme calculation to shrink the margin. VAT on those costs is handled separately through your normal VAT return. The margin is simply purchase price versus selling price for the item itself.

The records you must keep

The scheme is generous, so HMRC is strict on paperwork. In practice that means:

A stock book recording each item bought and sold under the scheme, with the margin made on each.
Purchase and sales records that evidence those figures.
Invoices that do not show a separate VAT figure and that state the item is sold under the margin scheme.

Get the records wrong and you can lose the right to use the scheme on those items — which is why clean, itemised record-keeping matters.

“Pay VAT on the profit, not the price — but only if the paperwork is clean.”

Why it matters for parts sellers

Dismantlers and used-parts traders often acquire stock without reclaimable VAT — the parts come out of vehicles bought from private sellers. For exactly that kind of stock, the margin scheme can make a real difference to what you hand over to HMRC. The catch is administration: itemised purchase and sale records, per-item margins, and compliant invoices. A platform that already logs each part, its cost basis and its sale price makes that record-keeping far less painful.

This is general information, not tax advice. VAT rules are detailed and your circumstances matter — confirm your position with HMRC guidance or a qualified accountant before relying on the scheme.

Common questions

How is VAT calculated under the margin scheme?

You pay VAT only on your margin — the difference between the purchase price and the selling price. The VAT due is one-sixth of the margin, which is 16.67%. For a £300 margin, the VAT is £50.

Can I use the VAT margin scheme for used car parts?

The margin scheme applies to eligible second-hand goods bought in circumstances where VAT wasn't reclaimable — such as stock acquired from private sellers. Many used parts qualify, but you should confirm eligibility for your specific stock with HMRC guidance or an accountant.

What records do I need for the margin scheme?

You must keep a stock book recording each item's purchase price, sale price and margin, supporting purchase and sales records, and issue invoices that don't show a separate VAT figure and state the item is sold under the margin scheme.