VAT Margin Calculator

See your real profit once VAT is taken out — or, if you sell second-hand goods, work out the VAT due under the HMRC Margin Scheme.

Calculation method

How this works: Profit after VAT assumes you are VAT registered and reclaim the VAT on your costs, so profit is the selling price minus the cost, both excluding VAT. Margin Scheme applies only to eligible second-hand goods, art, antiques and collectors' items. Results are for guidance only — check HMRC's Margin Scheme guidance before using it.

Profit margin with VAT: the rule to remember

If you are VAT registered, the VAT you charge customers is not your money — you pass it to HMRC. And the VAT you pay on your costs is usually reclaimed. So work out margin on prices excluding VAT. Using VAT-inclusive prices makes your margin look bigger than it is.

Profit = Selling price excl. VAT − Cost excl. VAT
Margin = Profit ÷ Selling price excl. VAT × 100
Markup = Profit ÷ Cost excl. VAT × 100

Example

You buy a product for £40 plus VAT and sell it for £60 including VAT at 20%.

  • Selling price excluding VAT: £60 ÷ 1.2 = £50 (the other £10 is VAT for HMRC)
  • Profit: £50 − £40 = £10
  • Margin: £10 ÷ £50 = 20%. Markup: £10 ÷ £40 = 25%

If you had forgotten the VAT, you would think you made £20 profit and a 33% margin — double the real figure.

If you are not VAT registered

You can't reclaim VAT on costs, so the VAT you pay is part of your cost, and you don't charge VAT on sales. In the calculator, enter the full amount you paid as the cost with Before VAT selected, and set VAT on sale to 0%. For the difference between margin and markup, read profit margin vs markup.

The VAT Margin Scheme

The Margin Scheme lets dealers in second-hand goods, works of art, antiques and collectors' items pay VAT only on the difference between what they paid and what they sold for, instead of on the full selling price. It is common for used car dealers and second-hand shops.

VAT due = (Selling price − Purchase price) × 20/120 (one sixth at 20%)

Example

A dealer buys a used car for £5,000 and sells it for £6,200. The margin is £1,200. VAT due is £1,200 ÷ 6 = £200, leaving £1,000 profit before other costs. If the car sells for less than it cost, there is no VAT to pay on that sale.

Key conditions

  • You must have bought the goods without VAT being charged, for example from a private seller or another Margin Scheme dealer.
  • You can't show VAT separately on the invoice to your customer.
  • You must keep a stock book and the records HMRC asks for.
  • A loss on one item can't be offset against the margin on another under the standard scheme.

Full details are in HMRC's Margin Scheme guidance.

Frequently asked questions

Do I calculate margin before or after VAT?

Before VAT, if you are VAT registered. The VAT on your sales belongs to HMRC, so it isn't part of your income.

What's the difference between margin and markup?

Margin is profit as a percentage of the selling price. Markup is profit as a percentage of the cost. A 25% markup gives a 20% margin.

Can I use the Margin Scheme for new goods?

No. It is only for eligible second-hand goods, works of art, antiques and collectors' items.

Why is Margin Scheme VAT one sixth and not 20%?

The selling price is treated as already including VAT, so the VAT is the VAT fraction of the margin. At 20%, that's 20/120, or one sixth.