HMRC Reorganises VAT Margin Scheme Guidance for Specialist Transactions

Summary

HMRC published a reorganised series of VAT margin-scheme guidance pages on 2 November 2026. The material now separates the general accounting rules from specialist guidance for repossessed and insurance-related goods, bad debts, hire-purchase transactions and goods accepted in part-exchange. [gov.uk], [gov.uk], [gov.uk]
The margin scheme allows eligible businesses to account for VAT on the difference between the purchase and selling prices rather than the full selling price. Eligibility depends on the goods, seller, acquisition route and records. Margin-scheme invoices must not separately disclose VAT, and complete stock records remain essential. [stripe.com], [gov.uk]
Dealers, auctioneers, pawnbrokers, finance businesses and insurers should update procedures and training materials. Transaction controls should distinguish standard sales, margin-scheme sales, hire purchase, repossession and part-exchange and ensure that purchase evidence, sales records, stock-book entries, agreements and bad-debt adjustments support the VAT calculation.

Extended article

HMRC has reorganised its published guidance on the VAT margin scheme, creating a central accounting page supported by separate guidance for specialist transactions.

The new pages were published on 2 November 2026 and address:

repossessed goods;
goods connected with insurance claims;
refurbished or reconditioned repossessed goods;
bad debts;
hire-purchase sales; and
goods accepted in part-exchange. [gov.uk], [gov.uk], [gov.uk]

The change is primarily a restructuring and clarification of guidance, but it provides businesses with an opportunity to review their operating procedures.

Basic margin-scheme operation

Where the conditions are satisfied, VAT is calculated on the profit margin rather than the full selling price.

At the standard 20% rate, the VAT included in a positive margin is generally one-sixth of that margin. If an eligible item is purchased for £1,500 and sold for £2,000, the margin is £500 and the VAT element is £83.33.

VAT should not be separately shown on a margin-scheme invoice. The customer therefore does not receive an ordinary input VAT amount for deduction.

The scheme is optional, but once a transaction is processed through it, the business must follow the applicable calculation, invoicing and record-keeping rules.

Repossessed and insurance-related goods

HMRC’s specialist guidance covers goods:

voluntarily returned under a hire-purchase agreement;
repossessed under a finance agreement;
returned under consumer-credit legislation; or
obtained through an insurance claim.

Banks and financial institutions may dispose of certain eligible goods without accounting for VAT where the goods are sold in essentially the same state and were obtained from a person who would not have charged VAT.

Finance companies may use the margin scheme for qualifying refurbished or reconditioned repossessed goods, subject to the detailed conditions. HMRC states that the purchase price for margin purposes is the original price paid for the goods. [gov.uk]

Hire-purchase transactions

Where a dealer sells eligible goods and arranges hire-purchase finance, the dealer may be treated as selling the goods to the finance company.

The sales price must be transferred from the hire-purchase agreement to the stock book. Finance charges are not subject to VAT where they are separately itemised.

The records should include either the hire-purchase agreement or appropriate cross-references, quotations, proposal documents, finance-company details and transaction references. The agreement or customer invoice must not separately show VAT on a margin-scheme transaction. [gov.uk]

Part-exchange transactions

Where a business accepts goods in part-exchange, the full selling price includes both:

the cash received; and
the agreed value of the part-exchanged goods.

HMRC’s example involves a boat sold for £2,500, with £2,000 paid in cash and another boat valued at £500 accepted in part-exchange. The margin calculation uses the full £2,500 selling price. [gov.uk]

Bad-debt relief

A business using the margin scheme may claim bad-debt relief where the statutory conditions are met.

However, the VAT relieved cannot exceed the amount of VAT previously accounted for on the margin. The claim must be recorded in the bad-debt account and reflected in the VAT return. [gov.uk]

Recommended actions

Businesses should: