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Guidance

Selling unredeemed pawns if you use a VAT margin scheme

How to use the margin scheme to account for VAT when selling unredeemed pawns.

Updates to this page

From:
HM Revenue & Customs
Published:
23 December 2021
Last updated:
2 November 2026
Show all updates

  1. Guidance from withdrawn VAT notice, The Margin and Global Accounting Scheme (VAT Notice 718), has been added.

  2. First published.

There are special rules you need to follow if you’re a pawnbroker who sells unredeemed pawns using a margin scheme.

When you can use a VAT margin scheme

You can only use a VAT margin scheme if all of the following apply:

  • the goods are eligible for the scheme
  • the loan is for £75 or less
  • the loan period was for at least 6 months (the statutory redemption period)

When you cannot use a VAT margin scheme

You cannot account for the restoration of the pledge under the VAT margin scheme or the global accounting scheme. You’ll need to adjust your purchase record if you’ve already entered the items in your scheme records.

If the pledge is restored during the period of grace (usually 3 months after the normal 6-month redemption period) then there will be no VAT due on the supply provided you:

  • record the redemption in your pledge stock records
  • stamp the ‘credit agreement and pawn receipt’ with the date of redemption and keep it for inspection by HMRC

Pawns over £75 in value

If the loan is for more than £75 and remains unredeemed at the end of the agreed period, then ownership does not pass to you. You can sell the goods as satisfaction for the debt.

These goods cannot be sold under the VAT margin scheme or global accounting scheme.

In this case, there is no taxable supply and no VAT is due, unless both of the following apply:

  • the pledgor is a taxable person
  • they acquired the goods in the course of their business

You must follow the procedures for accounting for VAT on goods sold in satisfaction of a debt in paragraph 18.4 of Notice 700.

Pawns over £75 in value sold at auction

A pawnbroker may sell these goods at auction on behalf of the pledgor. In this case, the auctioneer can use the auctioneers’ scheme if all the following apply:

How to work out the margin and VAT due

You must use the normal margin scheme rules to work out the margin and VAT due.

Purchase price

Your purchase price will be:

  • the loan amount
  • plus the initial 6 months interest payable
  • less any payments received from your customer

Do not add to the purchase price any:

  • interest for the 3-month grace period
  • costs for cleaning, repair charges, storage and other overhead expenses

A pawnbroker may buy unredeemed pawns at auction and use the VAT margin scheme for the onward sale. The pawnbroker’s purchase price will be the total price shown on the auctioneer’s invoice for both:

  • the goods
  • any services supplied under the auctioneers’ scheme

That includes buyer’s premium or other charges integral to the supply of the goods.

Records to keep

You should keep normal VAT margin scheme records.

You can keep the credit agreement or pawn receipt as your purchase invoice, as long as both:

  • the contract number is entered in your pledge stock record and cross refers to the agreement
  • a copy of the interest calculations and total purchase value for VAT margin scheme purposes is attached, if it differs from the amount shown on the receipt

Further information

You must show any goods you buy or sell using a margin scheme on your VAT return.

Tertiary legislation

You can find the legal conditions in VAT Tertiary Legislation:

  • section 7.1 — additional conditions for pawned goods

  • section 7.2 — restoration of pledge

  • section 7.3 — purchase invoice for pawned goods

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