Keep the stock-book evidence for a UK VAT margin-scheme sale

A second-hand item is not automatically a margin-scheme purchase. Retain the seller's invoice and identify whether VAT was charged on the goods. HMRC's overview excludes goods bought with VAT charged and limits the scheme to specified categories. Have unusual goods, imports or incomplete purchase evidence reviewed before assigning a margin-scheme code.

This guide concerns an individual-item stock book. Global accounting and specialist schemes have different record requirements. Record the method the business actually uses and keep ordinary VAT stock distinguishable. A shop selling both eligible used equipment and new accessories needs a way to prevent the new stock from inheriting the used item's tax code.

Use a sequential stock number and connect it to the purchase invoice, seller, acquisition date, item description and price. Add enough description to distinguish similar items, such as a serial number or condition reference. Carry that identity through the sales invoice and any later return. A generic product code for all used cameras is insufficient to explain which camera generated a particular margin.

HMRC requires the stock book to track each item and preserve purchase and sales information, including the margin and VAT due. Keep copies of both invoices. The sales invoice needs the applicable margin-scheme wording and must not show VAT separately. Review the invoice template as well as the accounting code before the first eligible sale.

Maintain refurbishment, parts and overhead costs as separate transactions. HMRC says those costs must not be added to the purchase price used in the margin scheme; their input tax follows the normal rules. This distinction matters when an inventory system builds a commercial cost that includes restoration work.

In an illustration, an eligible item bought for £720 sells for £1,020. The margin is £300 and one-sixth is £50 VAT under the scheme's stated calculation. A separate £90 repair bill may affect the business's profit, but adding it to the scheme purchase price would incorrectly reduce the margin to £210. Preserve both the commercial cost analysis and the VAT calculation.

Review missing seller details, inconsistent stock numbers and purchase invoices that do not establish the relevant treatment. Record who is obtaining the evidence and whether the item's scheme status remains unresolved. Do not fill gaps by copying another purchase's description or treating the bank payment as a complete invoice.

For returns, exchanges or other disposals, keep the original sale and the subsequent event connected. Ask the VAT reviewer to approve the correction method. Deleting the first sale can conceal the sequence the stock book is meant to explain. Reconcile the physical item, customer refund and changed tax result before closing the exception.

Compare sold-item references and approved VAT amounts with the return schedule. Investigate duplicate stock numbers, sales without purchases and items still shown as held after disposal. Retain records for unsold older stock until the eventual sale can be supported, following HMRC's retention requirements. The finished file should let a reviewer reconstruct one margin from the actual purchase and sale documents.