A margin scheme stock book is the item-by-item record HMRC requires you to keep for every piece you sell under the VAT margin scheme. It must carry six pieces of purchase information and six pieces of sales information for each item, cross-referenced to your invoices, and it must be kept for at least six years. The requirements are at paragraph 5.2 of VAT Notice 718.
If HMRC cannot check your declared margins from your records, VAT becomes due on the full selling price of the goods, even where they were otherwise eligible for the scheme.
The twelve mandatory columns
Notice 718 sets these out as two blocks. In practice they are one row per item, filled in twice - once when you buy, once when you sell.
Purchase details
| Field | Notes |
|---|---|
| Stock number | In numerical sequence |
| Date of purchase | |
| Purchase invoice number | Yours, if you wrote it |
| Purchase price | The figure the margin is calculated from |
| Name of seller | |
| Description of the item | Enough to identify it |
Sales details
| Field | Notes |
|---|---|
| Date of sale | |
| Sales invoice number | |
| Name of buyer | |
| Selling price, or method of disposal | Not only sales - see below |
| Margin on sale | Selling price minus purchase price |
| VAT due | Margin × 1/6 |
Everything follows from those two blocks. The stock number is the spine: your sales invoice must carry a cross-reference to it (paragraph 5.3), which is how an inspector walks from an invoice to a margin to a VAT figure without asking you a single question.
"Or method of disposal"
That phrase in the selling price column is doing more work than it looks. Not every item leaves as a sale. Pieces get broken for parts, sent for scrap, given away, stolen, returned, or moved into your own use. The stock book has to close the loop on each one.
An item with a purchase entry and no disposal entry is an open item. A stock book full of open items on pieces you no longer hold is the fastest way to turn a routine visit into a difficult one.
What must not be in it
VAT shown separately on the invoices. Notice 718 is explicit that VAT must not be shown separately on either the purchase or the sales invoice for margin scheme goods. Your stock book records the VAT you owe; your invoice does not display it.
Repair, service and restoration costs added to the purchase price. The notice says: "You must not add any of these costs to the purchase price of the goods you sell under the scheme." The margin base is what you paid the seller, full stop. The input VAT on those costs is separately reclaimable - it just does not belong in this column. See the margin scheme for second-hand watches for a worked example of the difference.
The invoices that sit behind it
The stock book is the index. The invoices are the evidence.
Purchase invoice - for a private purchase you write this yourself and the seller signs it. It must show the seller's name and address, your name and address, an invoice number, the date of the transaction, a description of the item, the total price with no VAT shown separately, and, where the item came from another VAT-registered dealer, a reference to the applicable margin scheme.
Sales invoice - your name, address and VAT registration number; the buyer's name and address; the stock book cross-reference number; an invoice number; the date; a description; the total price with no VAT shown separately; and one of the mandatory statements:
- "Margin Scheme - second-hand goods"
- "Margin Scheme - works of art"
- "Margin Scheme - collectors' items and antiques"
For watches and jewellery, the first. Get the wording exactly right; it is what allows the next dealer in the chain to use the scheme too, and its absence on an invoice you receive is what stops you using it.
Electronic stock books
Notice 718 does not require a physical bound book, and it does not set a format. A spreadsheet or a database is fine provided it holds all the required information, ties to the invoices, and can be produced on request.
Two practical points that catch people out:
- Sequence has to hold. Stock numbers run in numerical sequence. A spreadsheet that gets re-sorted by date or by brand loses that, and an inspector who cannot follow the sequence starts asking about gaps.
- Edits need to be traceable. A spreadsheet where any figure can be silently changed is not, in itself, fatal - but it is much weaker evidence than a record that shows what changed and when. If you are choosing a system, this is the feature to ask about.
How long to keep it
Six years from the date of the transaction, and longer where the item is still in stock. Notice 718 requires records covering stock on hand to be kept beyond the six-year point if the goods have not yet been sold.
For a dealer sitting on a piece for four years, that means the purchase documentation has to survive ten. Storage is cheap; a reconstructed purchase price is not.
What happens if the record fails
Paragraph 5.1 of Notice 718 is the sentence to read twice:
If we cannot check the margins you have declared from your records, VAT will be due on the full selling price of the goods you've supplied, even if they were otherwise eligible for the scheme.
Work the numbers on a modest business. A dealer turning over £600,000 a year at a 20% average margin declares roughly £20,000 of VAT under the scheme. Assessed on the full selling price instead, that becomes £100,000 - before interest and penalties, and potentially across more than one year.
The stock book is not administration. It is the thing standing between those two numbers.
A short checklist
Before your next VAT return, spot-check five items at random and confirm each one has:
- A stock number in sequence
- A purchase invoice with a named seller and no separate VAT
- A purchase price that matches the stock book
- A sales invoice carrying the stock number and the scheme wording
- A margin and a VAT figure that arithmetically follow
If any of the five fails, the problem is systemic rather than isolated. Fix the process, not the row.
Sources
- The Margin and Global Accounting Scheme (VAT Notice 718) - GOV.UK, sections 5 and 14-15
This is general information, not tax advice. Notice 718 is the authority and it is updated periodically; read the current version, and have your accountant confirm your stock book meets it before you rely on the scheme for a full year's returns.
WatchCRM generates the stock book as a by-product of buying and selling rather than as a separate task, with the sequence, the cross-reference and the scheme wording produced automatically. Export it as a spreadsheet whenever your accountant or an inspector asks.