Why the stock book matters more than the maths
Working out the VAT is the easy part: it's one sixth of your margin (the sale price minus the purchase price). The part that catches dealers out is the record-keeping. HMRC treats the margin scheme as a privilege that depends entirely on you keeping a complete, accurate stock book that reconciles with your invoices.
If your records don't stand up in an inspection, HMRC has the power to refuse the scheme and charge VAT on the full selling price rather than the margin. On a £10,000 car that's the difference between a few hundred pounds of VAT and over £1,600. The record-keeping is where the money actually is.
What each stock book entry must show
For every item you buy and sell under the scheme, HMRC expects your stock book to record:
- A stock number and a description of the item
- The purchase date and the purchase price
- The name and address of the person you bought it from
- The sale date and the sale price
- The margin and the VAT due on it
The seller's name and address is the field dealers most often miss, particularly when buying from private sellers on marketplaces. Without it, the entry is incomplete — and an incomplete entry is the kind of thing an inspector looks for.
A worked example
| Item | 2016 VW Golf |
| Bought (private seller) for | £6,000 |
| Sold for | £7,800 |
| Margin | £1,800 |
| VAT due (margin ÷ 6) | £300 |
That £300 goes in Box 1 of your VAT return. The full £7,800 sale price feeds Box 6, and the £6,000 purchase price feeds Box 7 — calculated differently from standard VAT, and a common point of error. A frequent mistake is putting only the margin in Box 6 instead of the full selling price, which causes discrepancies when HMRC cross-references your turnover.
How long to keep it, and inspections
Keep your stock book and supporting invoices for six years, in line with normal VAT rules. HMRC can ask to see them at any point in that window. Inspections of margin scheme dealers focus heavily on whether the stock book is complete and whether it reconciles with the rest of your records — so a clean, consistent book is your best protection.
Common questions
Can I keep my stock book in a spreadsheet?
Yes — there's no required format, as long as it captures all the required fields, reconciles with your invoices, and is kept for six years. Many dealers use a spreadsheet; the risk is simply that it's easy to leave fields blank or make arithmetic slips. A purpose-built tool reduces that risk, but a carefully kept spreadsheet is compliant.
What if I sell an item at a loss?
No VAT is due on a loss-making item, but it still needs a full stock book entry. Importantly, you cannot use that loss to reduce the VAT due on your profitable items — under the standard margin scheme each item is accounted for on its own.
Does this cover the Global Accounting Scheme?
No. This guide is about the standard margin scheme, where you track each item individually. The Global Accounting Scheme is a separate, simplified variant for high volumes of low-value items (typically under £500 each), where you work on quarterly totals rather than item by item.