VAT on second hand goods explained

Let’s say you’re running a landscaping business and want to purchase a lawnmower. You decide to save on costs and buy a pre-owned one. Chances are, you’ll find yourself asking: how do I deal with the VAT on second-hand goods? ​

We often receive questions from business owners on this topic. What if you’re not VAT-registered? What if the seller doesn’t provide a tax invoice? How much can you claim back? Things can get tricky, so let’s cover the basics you need to know.​

In the UK, purchasing second-hand goods generally falls into one of the two categories below (we’ll cover them in more detail later):​

VAT stands for Value Added Tax. In the UK, VAT is 20% on top of the goods or services you sell. There are, in specific circumstances, the reduced rate of 5% and the zero rate of 0%.  If you’re VAT registered, you can claim back the VAT portion on the purchases of goods or services you use for taxable activities. ​

In the UK, the VAT registration threshold is £85,000. In other words, if your business's annual turnover exceeds £85,000, you need to register for VAT. If your business's annual turnover is below this threshold, registering for VAT becomes voluntary. You can read more about this on our blog: how and when to register for VAT.​

Once you are VAT-registered you must include VAT at the appropriate rate on top of the sales price of your goods or service. You’ll also need to issue VAT invoices that meet HMRC’s requirements. ​

Here are some important VAT formulae you should know:​

Read more: 10 common VAT mistakes small business owners should avoid ​

If you purchase second-hand goods from an entity that is not registered for VAT (such as a private individual on Facebook Marketplace), you can’t claim VAT back on the purchase. These goods should be categorised as ‘zero-rated’ when recording the transaction and preparing your VAT return.​

When you purchase second-hand goods from an entity that is registered for VAT, and you have a valid tax invoice, you can claim back the VAT on your VAT return.​

To get the VAT portion of your purchase, for standard-rated purchases take the total price paid and divide by 6. For reduced-rated purchases, take the total price paid and divide by 21. You should pay through your business bank account and treat it as a business purchase, as well as a VAT purchase in your software.​

For example, if you purchase a second-hand printer for £120, the standard rated VAT portion would be £120/6= £20. You would then be able to claim £20 from HMRC in your next VAT return.​

When purchasing from someone who isn’t VAT registered, you won’t receive a VAT invoice, and there will be no VAT incurred on the items you buy. In this case, you wouldn’t be able to reclaim any VAT from HMRC in your next VAT return. ​

To make claims for VAT on second-hand goods, you need to have fully paid for the goods. It’s also important to keep records as per the HMRC (such as the purchase invoice).​

You need to keep appropriate records in order to claim VAT. If you purchase from a person who’s not registered for VAT, a tax invoice is not required. However, you should still document the following:​

If you purchase second-hand goods from a VAT-registered entity, you’ll need to keep a valid invoice. A valid VAT invoice should include the following information:​

Read more: How do VAT penalties work?​

If you’re VAT-registered and purchase second-hand goods for resale from a non-registered entity, you will not be able to claim VAT on the purchase. However, you will still need to charge VAT on the sales.  Some goods are eligible for the VAT Margin Scheme.​

Goods covered by the scheme are:​

Rather than the full selling price, you can use the VAT Margin Scheme and pay VAT based on the difference between what you paid for an item, and what you sold it for.​

For more details of the VAT Margin Scheme, or advice regarding VAT on second-hand goods, get in touch with us.​

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