VAT Margin Scheme Record-Keeping: What HMRC Requires and How to Stay Compliant

Get Your Records Wrong and You Lose the Margin Scheme Benefits

The VAT Margin Scheme offers real financial benefits to UK dealers in second-hand goods — but those benefits come with strict conditions. One of the most important: HMRC requires detailed, specific records for every eligible transaction. If you can't produce them on demand during an audit, HMRC can disallow your margin scheme claims and require you to pay VAT on full selling prices, potentially backdated.

This guide covers exactly what HMRC requires, how to organise your stock book, and how to ensure you're always audit-ready.

The Two Core Requirements

At its simplest, the margin scheme has two record-keeping requirements:

1. A purchase record for every eligible item, made at the time of purchase
2. A sales record linking the sale to the original purchase

Together, these form what HMRC calls a stock book. The stock book must be available for HMRC inspection at any time. There's no prescribed format, but the content requirements are specific.

What Your Purchase Record Must Include

For every second-hand item you buy under the margin scheme, HMRC requires you to record:

• The date of purchase
• The name and address of the seller
• A description of the goods
• The purchase price (total amount paid)
• A unique reference number (your stock reference, VIN for vehicles, etc.)

This record must be created at the time of purchase. Creating purchase records retrospectively — even based on bank statements or receipts — increases your compliance risk. HMRC expects contemporaneous records.

What Your Sales Record Must Include

When you sell an eligible item, you need to record:

• The date of sale
• A description of the goods (matching the purchase record)
• The selling price
• The stock reference number (linking to the purchase record)
• The margin (selling price minus purchase price)
• The VAT element (1/6 of the margin for standard-rated goods)

Additional Requirements for Vehicles

For motor vehicles, HMRC requires additional detail:

• Vehicle registration number
• Make, model, and year
• Mileage at purchase and at sale
• VIN/chassis number

Vehicles must always use the individual margin scheme (not global accounting), and records must link each specific vehicle to its sale.

Global Accounting: Different Requirements

If you use global accounting (for eligible items under £500), your record-keeping differs slightly. You need:

• A purchase record for each item (as above)
• An account showing total eligible purchases and sales for each VAT period
• Opening and closing stock values for eligible goods
• Calculation showing the global margin and VAT

Global accounting is simpler per-item but requires accurate period-end stock values. If your eligible stock valuation is wrong, your global accounting VAT will be wrong.

How Long to Keep Records

HMRC requires VAT records to be kept for 6 years. This means your stock book entries from today need to be accessible and legible until 2032. Paper records deteriorate; spreadsheet files get lost; software subscriptions lapse.

Your record-keeping system needs to be durable. Cloud-based systems with proper backup are strongly preferable to local spreadsheets or paper.

Common Record-Keeping Failures

Based on HMRC audit findings and accountant experience, the most common failures are:

No purchase record at time of buying. Dealers try to reconstruct purchase records from bank statements or auction invoices. HMRC expects records to be created contemporaneously.

Missing seller details. Particularly for private purchases, dealers sometimes record only the price and date, not the seller's name and address. HMRC requires seller details.

No link between purchase and sale records. If your purchase records and sales records are in separate systems and can't be matched, HMRC can't verify the margin calculation.

Incorrect identification of eligible goods. Including goods you bought from a VAT-registered supplier (who charged VAT) in your margin scheme calculations is an error — potentially a significant one.

Missing return and adjustment records. If a customer returns an item, the original margin VAT entry must be reversed correctly. Missing return records create discrepancies that HMRC will spot.

Digital Record-Keeping and Making Tax Digital

Under HMRC's Making Tax Digital (MTD) for VAT, all VAT-registered businesses must keep digital records and submit returns using compatible software. Your margin scheme stock book should integrate with your MTD-compatible accounting software so that the correct VAT figures flow through to your digital VAT return without manual re-entry.

How AutoVAT Maintains Your HMRC-Compliant Stock Book

AutoVAT automatically creates and maintains your HMRC-compliant stock book as you buy and sell. Every purchase entered into the system generates the required purchase record. Every sale is automatically matched to its purchase, the margin calculated, and the VAT recorded. Everything is cloud-stored, date-stamped, and audit-ready.

If HMRC asks for your stock book, you can export it immediately in a clear, organised format that demonstrates compliance for every transaction.

Get AutoVAT set up for your business →