Margin tax rate scheme for consignment businesses

What “margin scheme” means for consignment sellers

The margin scheme is a VAT idea used in many countries for secondhand goods. Instead of charging VAT on the full selling price, you calculate VAT only on your profit margin (selling price minus what you paid for the item). It exists to avoid double-taxing items that already had VAT when new.

Why consignment folks care: a lot of your stock comes from private individuals who can’t issue VAT invoices. The margin scheme can keep your tax smaller and your pricing competitive. It also changes your paperwork. You don’t show VAT on the customer invoice under the scheme, and you must keep very specific records to back up each margin.

If you run a professional resale operation, the admin can get heavy. Tools like ResaleOS help you store purchase costs, consignor payouts, and sale prices in one place, so margin calculations and reports don’t live in random spreadsheets.

Where the margin scheme is available

Quick map of the big regions. Always check the official guidance in your country; the rules differ on details and thresholds.

United Kingdom: VAT Margin Scheme for second-hand goods, works of art, antiques, and collectors’ items. See HMRC VAT Notice 718 for the ground rules, examples, and invoice wording. Helpful read: gov.uk/guidance/vat-margin-schemes.
European Union: The EU VAT Directive (Articles 311–343) lets member states apply a margin scheme for second-hand goods. Most EU countries implement it (Germany, France, Spain, Italy, Netherlands, etc.), but local nuances vary. Base law: EU VAT Directive 2006/112/EC.
Switzerland: Uses “differential taxation” on second-hand goods (Differenzbesteuerung). Similar logic: VAT on your margin, not the entire sale.
Countries without a general margin scheme:
- United States: No VAT; state sales tax applies on the full sale price. Consignees collect sales tax where required.
- Canada: No broad margin scheme. GST/HST normally applies to the full sale price if you’re a registrant. There are some special credits in narrow cases (e.g., certain used vehicles), but not a general resale margin rule.
- Australia and New Zealand: No general margin scheme for secondhand goods. You usually claim input tax on qualifying purchases (even from unregistered sellers in some cases) and charge GST on the full sale price.

When consignment sales can use the margin scheme

Four things have to line up in countries that offer it:

The goods are eligible: typically second-hand goods, antiques, collectibles, some artworks. Not new goods, not your own-made products, and not goods you bought with recoverable VAT on a normal tax invoice.
Your source: usually items acquired from private individuals (non-taxable persons) or from other dealers who sold them to you under the margin scheme. If you bought from a VAT-registered supplier who charged VAT normally, the margin scheme is off the table for that item.
Your role in the consignment: this is key.
- Acting as principal/in your own name (you take title or are treated as selling in your own name): in many countries you can apply the margin scheme. Your “purchase price” is what you pay or owe to the consignor.
- Acting purely as agent in the owner’s name: typically you cannot apply the margin scheme to the sale price. You charge VAT (if registered) on your commission only. The owner is responsible for VAT on the sale if they’re registered; if they’re a private individual, there’s usually no VAT on the sale itself.
Invoicing and records: under the scheme, you don’t show VAT separately on customer invoices. You must keep stock records that tie each sale to a purchase price or payout amount.

Auctioneers and some commission-style sellers have special variants of the scheme in a few countries. Always check your local guidance if you sell “in your own name on behalf of” the owner—those rules determine whether the margin scheme applies to your consignment model.

How the math works (with simple examples)

Basic formula most places use: Taxable margin = selling price − purchase price. VAT due is the VAT fraction of that margin.

Example (buy outright). You buy a jacket for 100 from a private seller. You sell it for 200. VAT rate is 20%. Margin = 200 − 100 = 100. VAT due = 100 × (20/120) = 16.67. You don’t show VAT on the customer invoice; you keep it in your VAT return.
Example (consignment, you sell in your own name). You sell for 200. Your commission is 50. You pay the consignor 150. Many countries treat your “purchase price” as 150, so margin = 200 − 150 = 50. VAT due = 50 × (20/120) = 8.33. Functionally, you’ve paid VAT on your commission margin.
If you sell below cost under the per‑item method, the margin is zero (not negative); you don’t get a VAT credit for a loss on an item. Some countries allow a pooled or “global” method for low-value items where losses and gains offset within the period. The UK is a common example; other EU countries may offer similar pooling with their own caps.

Important: you can’t add refurb costs, shipping-in, or other expenses to the “purchase price” unless your local rules explicitly allow it. In many places, those costs don’t change the margin. Also, shipping you charge the buyer is often part of the selling price for the scheme—check your country’s definition.

Set it up right: a practical checklist

Decide your role per consignment: principal (in your own name) or pure agent. Put this in your terms with consignors.
Segment inventory: mark each SKU as margin-scheme eligible, standard VAT/GST, or no tax (depending on your jurisdiction).
Capture the correct “purchase price”:
- Buy-out stock: use the cash you paid.
- Consignment sold in your own name: use the consignor payout you owe for that item.
- Agency-only: margin scheme usually not used; track your commission separately.
Set invoice templates: for margin-scheme items, do not show VAT separately. Add the required note (e.g., “VAT Margin Scheme — Second‑hand Goods” in the UK).
Keep a stock book: purchase date, source, item ID, sale date, sale price, purchase price/payout, margin. This is mandatory in many countries.
Pick your calculation method: per-item or an allowed pooled/global method for low-value goods (if your country offers it). Document your choice.
Reconcile consignor statements: make sure payouts match the “purchase prices” used in your margin calcs.
Run a test return: do a dry run on a small batch so you catch issues with invoices, negative margins, or mixed-tax items.

Non-obvious mistakes that cost money

Showing VAT on the invoice under the margin scheme. Don’t do it. Add the official note instead. Showing VAT can force you to treat it as included and pay extra.
Mixing schemes on a single item. If you bought with recoverable VAT, you can’t later switch that item to margin. Keep sourcing paths clean.
Wrong “purchase price” for consignments. If you act as principal, your purchase price is usually the consignor payout, not the seller’s asking price or the tagged price.
Forgetting buyer-paid shipping. In many countries, that’s part of the selling price for margin calcs. Excluding it underreports VAT.
Using pooled/global accounting when not allowed. Some countries don’t offer it, or they cap the item value. If you pool incorrectly, you’re exposed in an audit.
Cross-border blind spots. Margin-scheme sales often sit outside EU OSS/IOSS simplifications. If you ship abroad, confirm where the supply is taxed and how you report it.
Not locking inventory status. Moving an item from “margin” to “standard VAT” midstream (or vice versa) without a paper trail is a red flag.

How a pro runs this in ResaleOS

Create categories for “Margin scheme,” “Standard VAT,” and “Agency-only” items so the tax path is set at intake.
Record consignor terms by item: commission rate and expected payout. The payout becomes the purchase price for margin calculations when you sell in your own name.
Attach photos and intake notes so audit trails are airtight.
Use auto-generated invoices with the correct margin-scheme note (no VAT shown) for customer receipts.
Run a “Margin report” by period to see total sales, purchase prices/payouts, margins, and the VAT fraction due.

Frequently asked questions

Can I use the margin scheme if I buy from a VAT-registered business?

Usually no. If a VAT-registered supplier sells to you with normal VAT and you can claim the input tax, that item can’t go under the margin scheme when you resell it. The scheme is mainly for goods sourced from private individuals or from other dealers using the scheme.

What do I put on the customer invoice under the margin scheme?

You do not show VAT as a separate line. Add the required note (country-specific), such as “VAT Margin Scheme — Second‑hand Goods” in the UK. The price is tax-inclusive, but the VAT amount stays off the invoice and is only calculated in your return.

How do consignment payouts affect the margin?

If you sell in your own name (treated as principal), many countries treat the consignor payout as your “purchase price.” Margin = sale price minus payout. If you act only as agent in the owner’s name, you usually can’t use the scheme—VAT (if any) is on your commission, not on the sale.

Do I pay VAT if I sell below my purchase price?

Under the per-item method, no VAT is due on that item because the margin isn’t positive. You also don’t get a VAT credit for the loss. Some countries allow pooled/global accounting for low-value goods, where losses can offset gains within the period—check if your country offers it and the limits.

Is the margin scheme always better than standard VAT?

Not always. It shines when you source from private individuals (no input VAT to claim) and you add value through curation, repair, or brand. If most of your stock comes with recoverable VAT, standard VAT rules can be simpler and sometimes cheaper overall. Run both scenarios on a sample of your inventory before you commit.