Two conditions are non-negotiable: the goods must be eligible second-hand goods, and you must keep a stockbook with the prescribed information, supported by purchase and sales evidence. Miss the records and HMRC charges VAT on the full selling price. For bulk low-value resellers, the Global Accounting Scheme is a simplified variant worth knowing.
We get this question often, and from an unexpected mix of resellers. The UK second-hand market has grown sharply over the last two years: sneakers obviously, where StockX and GOAT have professionalised what used to be a hobby, but also, more surprisingly, second-hand Pokémon cards, where the resale market has matured into proper trading volumes. The mechanics are the same in both: you buy from private sellers, you resell at a margin, and the VAT treatment can make or break the economics. This article walks through how the Margin Scheme works for the sneaker reseller case, but the framework applies just as well to cards, watches, vintage clothing, and other private-source second-hand goods.
- Buying on a VAT invoice. If a supplier (a brand outlet, a wholesaler, a VAT-registered reseller) charges VAT separately on the purchase invoice, those sneakers are not eligible for the Margin Scheme. The scheme only works on goods bought without VAT: typically from private sellers, or from other Margin Scheme dealers.
- Mixing private and business purchases. Pairs you owned personally and decided to flip cannot enter the scheme freely. You can transfer them in if you have evidence of the original private purchase price, but no evidence means HMRC defaults to VAT on the full sale. Document everything from day one.
- Letting the stockbook slip. The stockbook is the legal backbone of the scheme. Each pair needs a unique reference, full purchase detail (date, seller, price), full sale detail (date, buyer, price), and the margin. HMRC's manual is explicit: no records, VAT on the full selling price.
- Showing VAT separately on the sales invoice. Under the Margin Scheme, the sales invoice must NOT show VAT as a separate line. Buyers cannot reclaim Margin Scheme VAT as input tax, and HMRC treats a separately-stated VAT line as evidence you have chosen the normal scheme for that sale, losing the margin treatment entirely.
- Treating Global Accounting as the default option. Global Accounting is a simplification, not a substitute. It works for high-volume, low-value items (each under £500 at purchase), and you cannot mix the two schemes on the same pair. For grails and limited editions over £500, you need the standard Margin Scheme with full per-item records.
Why the Margin Scheme matters for sneaker resellers
The economics of reselling sneakers from private sellers rely on the Margin Scheme. Without it, you would pay 20% VAT on the entire sale price, even though you paid no recoverable VAT at purchase: the private seller had none to charge, and you had none to reclaim. On a £400 pair bought from a private seller and sold for £500, the normal VAT rules would put £83 of output tax on a £100 gross margin. The business model would collapse.
The Margin Scheme fixes this by limiting your output tax to one-sixth of the margin (the 16.67% VAT fraction). On the same pair, you pay HMRC £16.67 instead of £83, and the rest of the margin remains your trading profit. The legal basis is Article 12 of the VAT (Special Provisions) Order 1995, with section 50A of the VAT Act 1994 as the enabling statute. The detailed conditions are in HMRC's VAT Notice 718.
Which sneakers are eligible (and which are not)
HMRC's legal definition of eligible second-hand goods is "goods which are suitable for further use as they are, or after repair". Sneakers fit that test cleanly. The condition of the pair (deadstock, lightly worn, worn) does not affect eligibility; what matters is the route by which you acquired them.
The scheme works on pairs where no VAT was charged at purchase. The clean cases are:
- Bought from a private individual via StockX, GOAT, eBay, Facebook Marketplace, Vinted, or a direct deal. Private sellers are not VAT-registered for that activity, so no VAT is charged.
- Bought from another Margin Scheme dealer on an invoice that does not show VAT separately. This is the standard pattern in the sneaker reseller trade.
- Bought at auction where the auctioneer used the Auctioneers' Scheme (Notice 718/2).
The hard exclusions:
- Pairs bought on a normal VAT invoice (brand outlet, wholesaler, VAT-registered retailer charging VAT separately) are excluded from the scheme. Handle these under the normal rules: reclaim the input VAT, charge VAT on the full sale price.
- Gifted pairs are excluded. Even if you would resell them, no Margin Scheme applies; VAT is due on the full sale price.
- Pairs converted from private to business use can be included, but only if you can prove the original purchase price. Without that evidence, HMRC defaults to VAT on the full sale.
How the margin is calculated, in practice
The calculation is straightforward, but the discipline matters. For each pair you sell under the scheme, the VAT due is:
(Sale price − Purchase price) × 1/6
The purchase price is what you actually paid the seller, before any platform fees or commissions you incurred. The sale price is what the buyer pays, including any delivery charge bundled into the headline price. If you sell at a loss (sale price below purchase price), the margin is zero: no VAT is due on that pair, but you cannot use the loss to offset margins on other pairs.
The stockbook: the legal backbone of the scheme
HMRC's manual VATMARG10000 is explicit: where Margin Scheme records are missing, VAT is due on the full selling price, even where the underlying eligibility was perfect. The stockbook is therefore the single most important compliance artefact for a sneaker reseller.
For each pair, the stockbook must record:
- A unique stock number you assign at purchase
- Date of purchase, name and address of the seller (yes, even for a private seller; a username plus delivery address is acceptable for platform purchases)
- Description of the pair (brand, model, size, colourway, SKU if available)
- Purchase price paid
- Date of sale, name and address of the buyer
- Sale price received
- Margin (sale − purchase) and the VAT due on the margin
Sales invoices must NOT show VAT as a separate amount. Notice 718 is specific on this: a Margin Scheme invoice can mention that the goods were sold under the Margin Scheme, but the VAT calculation must be invisible to the buyer. Showing VAT separately on the invoice is treated as electing the normal scheme for that sale, and the margin treatment is lost.
Records must be kept for six years (the general VAT record-keeping period). If HMRC requests them during a compliance check, you have a reasonable period to reconstruct any gaps; in practice the manual gives up to three months.
Reselling sneakers and want to set up the Margin Scheme cleanly from the start? Our VAT Expert Call walks through your setup in 30 minutes.
Global Accounting: when the volume version helps
The standard Margin Scheme requires per-pair stockbook detail. For resellers moving hundreds of low-value pairs a month, that level of granularity is hard to sustain. The Global Accounting Scheme (also in Notice 718, based on Article 13 of the same Order) is the simplified variant designed for exactly this case.
Under Global Accounting, you account for VAT on the difference between total eligible purchases and total eligible sales in a VAT period, rather than per pair. You still keep purchase and sales records, but the granular per-item margin calculation drops away. The trade-off: each item must have a purchase value under £500. Pairs you bought for £500 or more must come out of Global Accounting and into the standard Margin Scheme with the full per-pair stockbook detail.
For most sneaker resellers, the practical pattern is hybrid: Global Accounting for the bulk of mid-range stock (under £500 a pair at purchase), standard Margin Scheme for grails and limited editions above the threshold. You cannot apply both schemes to the same pair, but you can run them in parallel across your overall inventory.
When you might need expert VAT advisory
The Margin Scheme sounds simple on paper, but its conditions are policed strictly, and the consequences of getting it wrong (VAT on the full selling price) are immediate. In practice, the situations below are where a senior specialist's read meaningfully improves the outcome:
- You're setting up a reselling business and want to choose between the standard Margin Scheme and Global Accounting before you commit to a record-keeping system
- Your business mixes private-source pairs (Margin Scheme), wholesale or brand-source pairs (normal VAT), and converted personal stock, and you want a clean framework for tracking the three streams separately
- You've crossed the £90,000 VAT registration threshold mid-year and need to start the scheme correctly on your opening stock
- HMRC has opened a compliance check on a Margin Scheme reseller and is questioning the stockbook integrity or the eligibility of specific lots
- You're an accountant taking on a reseller client and want to sense-check the existing scheme treatment before the next return
- You sell internationally as well as in the UK, and the Margin Scheme intersects with cross-border VAT, OSS, IOSS, or marketplace deemed supplier rules
Whether you're a business owner or an accountant working on a client case, we focus on the VAT questions where extra expertise pays off, and we work in plain English.