Margin Scheme Taxation
Also: margin taxation, VAT margin scheme, second-hand margin scheme
The VAT margin scheme is a special value-added-tax procedure under which dealers charge VAT only on their trading margin (the difference between purchase and sale price), not on the full sale price.
The VAT margin scheme is a special value-added-tax procedure for the resale of second-hand goods, works of art, antiques and collectors' items. In the precious metals trade it plays a significant role above all in the purchase and resale of silver coins, collector coins and non-VAT-exempt scrap-silver items. Instead of levying the full rate of VAT on the gross sale price, tax is charged only on the margin — the difference between the purchase and the sale price.
Note: This article provides general information and does not replace individual tax advice. Please consult a qualified accountant or tax adviser for specific questions.
Conditions in the United Kingdom
Under UK VAT rules (HMRC, VAT Act 1994) a dealer may only use the margin scheme when all four conditions are met:
- The dealer is a reseller (buys and sells in the course of business).
- The item was acquired from a private individual or a person not entitled to reclaim VAT (e.g. someone not VAT-registered) — or from another margin-scheme dealer.
- The item is a movable tangible good (e.g. coins, jewellery or bars as second-hand goods — not new goods).
- The item was acquired within the United Kingdom (or otherwise qualifies under the scheme).
If regular VAT was charged on the purchase instead (e.g. buying from another VAT-registered dealer who reclaimed input tax), the margin scheme is not available.
The formula: tax only on the margin
Taxable amount = sale price − purchase price (= trading margin)
VAT = taxable amount × 20 % (standard rate)
Important: The margin is a gross margin — the VAT is already included within it. The correct extraction is:
VAT element = trading margin × (20 / 120)
Net margin = trading margin × (100 / 120)
If the margin is negative (sale price < purchase price), no VAT is due — and there is no entitlement to a VAT refund either.
Comparison: standard VAT vs. margin scheme
| Feature | Standard VAT | Margin scheme |
|---|---|---|
| Tax base | Entire sale price (net) | Only the trading margin (gross) |
| Shown on invoice | VAT shown separately | No separate VAT shown |
| Input tax recovery for buyer | Possible | Not possible |
| Typical use case | New goods / B2B | Second-hand goods, collectors' market |
| Legal basis | VAT Act 1994 | VAT margin scheme (HMRC) |
Significance for the precious metals trade
Silver coins and collector coins
Silver — unlike investment gold — is subject to the full VAT rate of 20%. When buying from private individuals (e.g. inherited pieces, old collector coins), a commercial dealer can therefore use the margin scheme: they pay no VAT on the entire resale price, only on their margin. This considerably lowers the effective tax burden and enables more competitive buying prices.
Effect on the end consumer
Because the dealer may not show VAT separately under the margin scheme, the buyer in turn cannot reclaim input tax. For private individuals this is irrelevant; for businesses (e.g. jewellers buying collector coins as trading stock) standard VAT can be more advantageous.
Global accounting for low-value items
For items with a purchase price of a low value each, a dealer can apply the global accounting scheme instead: rather than accounting for each sale individually, the total of all sale prices is set against the total of all purchase prices for an accounting period. This simplification reduces record-keeping for high-volume, small-value day-to-day trading. If a period produces a negative overall balance, it leads to neither a tax refund nor a carry-over into other periods.
Distinction: investment gold and investment silver
Investment gold (gold bars and coins meeting certain criteria, e.g. fineness ≥ 995/1000) is entirely exempt from VAT in the UK (HMRC; in line with Directive 2006/112/EC) — the margin scheme does not come into play here at all. When buying scrap gold or dental gold, refining businesses are subject to their own special rules (reverse charge for the recipient of the supply).
For investment silver, by contrast, no comparable exemption exists; here the margin scheme is the most important instrument for optimising tax on the secondary market. Use our tax estimator and the silver price to estimate the effective tax burden for your particular plans.
Obligations and documentation
Dealers using the margin scheme must:
- Keep purchase records in full (private individuals do not issue invoices → a self-billed purchase record is required).
- Not show VAT separately on the sales invoice and include the note "Margin scheme — second-hand goods".
- Keep separate records for margin-scheme and standard-rated supplies.
- Enter the taxable amount (net margin) — not the turnover — on the VAT return.
Breaches — such as unauthorised use or failure to mark invoices — can lead to a demand for the full standard VAT.
In brief
The VAT margin scheme is a central tax-planning instrument for commercial precious-metal and coin dealers buying from private individuals: only the trading margin is taxed, not the full sale price — which makes the secondary market for silver coins and collector items economically viable. Nothing changes for private sellers; for business buyers, however, input-tax recovery is lost.