Margin VAT Scheme (VAT on Margin)

In the EU the scheme is set out in the VAT Directive (2006/112/EC) as the special arrangements for second-hand goods, and the UK has an equivalent second-hand margin scheme. A refurbisher that buys a phone from a consumer for EUR 300 and sells it for EUR 450 pays VAT on the EUR 150 margin only. In exchange, it cannot reclaim input VAT on the purchase and cannot show VAT separately on the customer invoice.

For pricing, the scheme makes a large difference to net margin. On a margin-scheme device, VAT is a share of the margin, not of the price, so the same retail price leaves the seller more money than on a device sold under standard VAT. This is one reason refurbished prices can undercut new prices so sharply, and why competitor prices in the same market may reflect different VAT treatments: a seller buying stock from businesses with VAT cannot use the scheme on that stock and needs a higher price to reach the same margin.

The scheme is also a known compliance risk. Devices bought from VAT-registered businesses, with deductible VAT, are not eligible, and applying the margin scheme to them understates VAT due. Marketplaces, retailers, and wholesale buyers increasingly check suppliers' VAT treatment and stock traceability, because unrealistically low prices from non-compliant sellers distort the market for everyone pricing correctly.