When you use the VAT Margin Scheme, you’ll need to keep certain records and include some extra information on invoices.

Don’t forget, you’ll need to stick to the rules of the standard VAT scheme as well as the margin scheme.

What is Record Keeping?

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

These records are then used for the purposes of preparing accounts, taxes or VAT returns. It means it is really important the record-keeping process is efficient and accurate.

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.

How Long Should You Keep VAT Records?

You need to keep all VAT records for 6 years. VAT records can either stored digitally or as hard copies.

VAT Margin Scheme Record-Keeping

You need to follow two sets of rules when it comes to record-keeping:

  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

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:

Purchase DetailsSales Details
Stock number in numerical order
Purchase dateDate of sale
Purchase invoice numberSales invoice number
Name of sellerSelling price
Description of itemName of buyer
Margin on sale
Margin scheme VAT due

If you buy an item from an individual and they do not give you an invoice, then it is your responsibility to create an invoice.

Use your purchase invoice template below for your VAT records and then fill out your stock book noting all of the above information except for the purchase invoice number.

Download my Margin Scheme Stock Book Template (Excel Version).

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 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’.

VAT Margin Scheme Invoice Example

Here is a VAT margin scheme invoice example, to show you what it should look like and what you need to include.