2. Basic principles
top ^2.1 What is the Margin Scheme?
VAT is normally due on the full value of the goods you sell. The Margin Scheme allows you to calculate VAT on the difference (or margin) between your buying price and your selling price. If no profit is made (because the purchase price exceeds the selling price) then no VAT is payable.
The scheme is not compulsory. If you decide to use it you must meet the conditions of the scheme or VAT will be due on the full selling price of your sales.
top ^2.2 Why is there a Margin Scheme?
Businesses buying and selling goods can usually recover the VAT they are charged on their stock as input tax. But if you obtain most of your stock from members of the public who are not VAT registered or from other dealers using the Margin Scheme, you will have no VAT to recover. The Margin Scheme means that you still charge VAT but only on the value you add to the goods. By calculating VAT on the margin, the scheme therefore avoids double taxation as second-hand goods re-enter the economic cycle.
taken from
here