Tick "Bought VAT-free" if you paid a private individual or a non-VAT-registered seller, or bought under someone else's Margin Scheme sale — in other words, the purchase invoice or receipt shows no separate VAT amount. That's what makes an item eligible for the Margin Scheme. If you reclaimed VAT on the purchase, or the seller charged you VAT, untick it and this tool treats that item under standard VAT rules instead.
This models the standard Margin Scheme at the 20% VAT rate (VAT due = margin × 1/6), not the Global Accounting Scheme, and it doesn't cover cars, aircraft, boats, or goods you've had repaired or improved before resale — repair and refurbishment costs can never be added to your purchase price under the scheme. It also doesn't offset losses on one item against profits on another; under the standard Margin Scheme, an item sold below its purchase price simply has nil VAT due, it doesn't create a credit. To actually use the scheme you need a compliant stock book recording the purchase and sale of every item — see VAT Notice 718 for the full record-keeping rules, and confirm your specific situation with an accountant before relying on this for your VAT return.
If you buy stock from car boot sales, house clearances, charity shops, or private sellers on Facebook Marketplace and resell it on eBay, Vinted, or Depop, charging VAT on your full selling price would tax you twice — once implicitly, because your purchase price already reflected no VAT being reclaimable, and again when you sell. The VAT Margin Scheme fixes this by letting VAT-registered resellers pay VAT only on the difference between what they paid and what they sold for, not the full sale price. This tool runs that calculation across your items, flags which ones actually qualify, and shows exactly how much VAT the Margin Scheme saves you compared with accounting for VAT the normal way.
It's only relevant once you're VAT-registered — if you're not sure whether you should be, our voluntary VAT registration tool below covers that decision separately.
VAT due is your margin — selling price minus purchase price — multiplied by 1/6. That fraction converts a 20%-VAT-inclusive margin into the tax portion, so a £120 margin means £20 VAT due, not £24. If you sell an item for less than you paid, no VAT is due on that item, but you can't use the loss to offset VAT on a different item's profit under the standard scheme.
Most second-hand goods, antiques, works of art, and collectors' items qualify, provided you bought them without being charged VAT — typically from a private individual, a non-VAT-registered business, or another dealer's Margin Scheme sale. If the purchase invoice shows VAT separately, or you reclaimed VAT on the purchase, that specific item isn't eligible and has to be sold under normal VAT rules instead. Cars have their own separate scheme, and certain goods like aircraft and caravans can't use the simplified Global Accounting Scheme at all.
HMRC requires a Margin Scheme stock book showing, for every item, the purchase date, purchase price, seller, description, sale date, sale price, buyer, and the margin and VAT you calculated. If your records can't back up a declared margin, HMRC can charge VAT on the full selling price instead — so the record-keeping isn't optional paperwork, it's what makes the scheme valid at all.