VAT Margin Scheme Invoicing & Record-Keeping

Invoicing and record-keeping are essential for any business registered for VAT, but for those using the VAT margin scheme, there are certain additional records that need to be kept and extra information that needs to be put on invoices.

In this guide, you’ll find out about the rules and regulations that second-hand businesses need to follow when it comes to record-keeping and invoicing.

1. Record-Keeping for the VAT Margin Scheme

All registered businesses must keep business records, which records partly depend on their business structure and whether they are registered for VAT. These records are then used for the purposes of preparing accounts, taxes or VAT returns, meaning it is really important the record-keeping process is efficient and accurate.

Record-keeping is the process of logging, storing paperwork and recording individual transactions of a business.

When businesses are VAT registered they must keep detailed records of all the sales and purchases that make up the amounts on each box of every VAT return filed. These VAT records need to be stored for 6 years, either digitally or as hard copies.

For second hand businesses that have opted into the VAT margin scheme, two sets of VAT records will need to be kept:

1. Standard VAT record-keeping;
2. Margin scheme record-keeping.

When it comes to the margin scheme you’ll need to:

• Maintain a stock book that tracks each item sold under the scheme;
• Create your own purchase invoices
• Include certain information on sales invoices

2. VAT Margin Scheme Stock Book

A VAT margin scheme stock book tracks every item sold under the scheme. This is a crucial piece of information and in the event of a VAT investigation by HMRC, they will request to see it. If a margin scheme stock book is not available they may request that you go back and amend your returns to pay VAT based on the Standard VAT Scheme. That could be costly.

Your stock book must include the following information:

[table id=52 /]

3. 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

4. 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 separately.  Here is the information you need to include on your margin scheme 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’.