VAT Second Hand Margin Scheme: Record Keeping & Bookkeeping

If you choose to use the VAT Margin Scheme then you are required by law to keep certain accounting records and HMRC will check you are compliant on each one if you are investigated.  The rules are strict and you’ll need to have a neat process set up to make your bookkeeping as painless as possible and don’t forget you’ll need to adhere to the rules of the standard VAT scheme as well as the margin scheme!

Margin Scheme Stock Book

This is a crucial piece of information and in the event of a VAT investigation by HMRC they will request this and check that it meets their requirements.  If this is not available they will request that you go back and pay VAT based on the Standard VAT Scheme, which could be costly.

Here are the items you need to include in your margin scheme stock book, from the HMRC website:

Source: HMRC

Margin Scheme Purchase Invoices

When you use the margin scheme it is likely that you are buying items from members of the public who are not VAT registered and probably not going to issue you a purchase invoice.  The difficulty is that purchase invoices are required as part of your business records when you are VAT registered. So as part of the VAT Second Hand Margin Scheme HMRC requires that you create your own purchase invoice which contains the following information:

  1. The seller’s name and address
  2. Your name and address
  3. A means of cross-referencing between the sales system and the stock book, for example, the stock book number
  4. Invoice number (unless you made out the purchase invoice yourself)
  5. Date of transaction
  6. A description of the item
  7. Total price – you must not add any other costs to this price

Margin Scheme Sales Invoices

Unlike under the Standard VAT Scheme where you must show the amount of VAT being charged, when you use the margin scheme you do not need to show the amount of VAT being charged separately.  Here is the information you need to include on your sales invoices:

  1. Your name, address and VAT registration number
  2. Your buyer’s name and address
  3. A means of cross-referencing between the sales system and the stock book, for example, the stock book number
  4. Invoice number
  5. Date of transaction
  6. A description of the item
  7. Include wording disclosing the particular margin scheme you are using for the sale such as ‘Second Hand Goods Margin Scheme’.

Take a Look at my Stock Book and Invoice Templates for the VAT Second Hand Scheme Here>>

Stock Book and Invoice Templates VAT Second Hand Margin Scheme

Anita is a Chartered Accountant, turned blogger and creator of the ever popular free Go Self Employed Email Mini Course, which has been completed by hundreds of attendees all over the UK. Using her 10 years experience in accounting, tax and operations for Small Businesses, Anita is on a mission to make finance simple for the self employed, so they can stop stressing about tax & finances and focus on building profitable businesses which will give them the lifestyle they dream of.