HMRC Stock Book Requirements: What Every Dealer Needs to Know

If you deal in second-hand goods, antiques, jewellery, or other unique items under the VAT Margin Scheme, keeping a proper stock book is not optional: it is a legal requirement. HMRC expects detailed, accurate records for every item you buy and sell under the scheme, and getting it wrong can mean losing the right to use the margin scheme altogether. A dedicated VAT Margin Scheme compliance tool keeps this stock book digital and audit-ready.

This guide covers exactly what HMRC requires, what inspectors look for, the most common record-keeping mistakes, and how to make sure your stock book is fully compliant.

What HMRC requires for margin scheme stock books

The rules for stock book record-keeping are set out in VAT Margin Schemes: Keeping Records, which is the definitive HMRC guidance for dealers using the margin scheme.

The conditions themselves have force of law under the VAT (Special Provisions) Order 1995 and are published in VAT tertiary legislation: margin schemes. Any business using the margin scheme must maintain a stock book that records details of every eligible item purchased and sold. The stock book serves two purposes:

It supports eligibility, recording for each item the details that show it qualifies for the margin scheme — alongside, not instead of, the invoices HMRC separately requires for every item on the scheme
It enables VAT to be calculated correctly, providing the purchase price and selling price needed to calculate the margin, and therefore the VAT due

Eligibility itself turns on two conditions that have to hold together. First, the item has to be goods the scheme covers — second-hand goods, works of art, antiques, or collectors’ items — which is where jewellery, watches, and most antique stock sits. What the item is can rule it out on its own: precious metals, investment gold, and precious stones sit outside the scheme however you acquired them. Second, you must have been charged no VAT on the goods when you bought them. Whether that VAT would have been recoverable makes no difference, because VAT charged on the goods rules the item out either way. It is VAT on the goods that counts: a genuinely separate service the seller invoices in its own right — an auction catalogue illustration, say, or an indemnity fee where an approved insurance company provides the policy — can carry VAT under the normal rules without disqualifying the item. An auction buyer’s premium is not such a service: where the auctioneer sells under the margin scheme it is part of their own margin, with no VAT shown separately on it, so separate VAT on the goods is a warning that the sale fell outside the scheme. Separate VAT on the premium alone does not carry that meaning: HMRC requires a standard-rated, separately shown premium on imported works of art, antiques and collectors’ items sold at auction under the scheme, so treat it as a point to check with your accountant, not an ancillary charge to wave through. These are the conditions that come up most often in the trade rather than the complete list, so check the full eligibility rules on gov.uk before relying on them.

HMRC’s condition is that you “must maintain a stock book in written or electronic form”. It does not prescribe a format beyond that, so a physical ledger, a spreadsheet, or dedicated software all qualify, as long as the record contains every required field and can be produced for inspection.

What records must be kept

For each item under the VAT Margin Scheme, HMRC requires specific stockbook entries, plus supporting purchase and sales invoice details:

Purchase records

A stock number, unique to each item
The date of purchase
The purchase invoice number, unless you issue the purchase invoice yourself
The purchase price, meaning the total price shown on the margin scheme purchase invoice. HMRC’s condition for a self-billed purchase invoice is the “total price paid”, and it adds that you must not add any other costs to this price. So restoration, repair, and separately invoiced services do not go into this figure. At auction, where the auctioneer sells the goods under the auctioneers’ margin scheme, the buyer’s premium is part of the auctioneer’s own margin with no VAT shown separately on it, so it is inside the total price and part of your purchase price. Separate VAT shown on the goods means the auctioneer did not sell under the margin scheme at all, which is a question of whether the item is eligible for your margin scheme rather than what to put in the purchase price. Separate VAT on the premium alone does not carry that meaning — HMRC requires a standard-rated, separately shown premium on imported works of art, antiques and collectors’ items sold at auction under the scheme — so check the specific position with your accountant. A genuinely separate service the auctioneer invoices in its own right — a catalogue illustration or an indemnity fee where an approved insurance company provides the policy — carries its own VAT under the normal rules and is not added to your margin scheme purchase price; whether that VAT is recoverable as your input tax is a point for your accountant
The seller name, as required in the stockbook (keep the seller address on your purchase invoice)
A description of the item, sufficient to identify it (e.g. “18ct gold diamond ring, 0.50ct solitaire” rather than just “ring”)

Sale records

The date of sale
The sales invoice number
The selling price, or the method of disposal, which must be recorded where the item was not sold (e.g. scrapped, donated)
The buyer name, as required in the stockbook (keep the buyer address on your sales invoice)

Margin calculation

The purchase price, taken from the stock book entry
The selling price
The margin, which is the difference between selling price and purchase price
The VAT on the margin, calculated as one-sixth of the positive margin

If an item is sold at a loss (selling price is less than purchase price), the margin is nil and no VAT is due on that transaction. You cannot offset losses against profits on other items under the standard margin scheme — each item is calculated individually.

Retention period

HMRC requires you to keep your stock book records for at least six years. This includes records for items that have been sold, not just current stock. If stock was bought more than six years ago and is still unsold, keep the records until the item is sold. If HMRC opens an investigation, they may request records going back to the start of your use of the margin scheme.

Important: The six-year retention requirement applies even if you close your business or deregister for VAT. Keep your records safe.

Paper vs digital stock books: what HMRC accepts

HMRC accepts both paper and digital stock books: the condition is “written or electronic form”. There is no requirement to use software, and Making Tax Digital does not introduce one for the stock book; a handwritten ledger is perfectly acceptable provided it contains all the required fields.

However, there are strong practical reasons to go digital:

Advantages of digital stock books

Searchability: find any item instantly rather than flipping through pages
Automatic calculations: margins and VAT calculated without manual arithmetic
Reporting: generate summaries for your VAT return periods on demand
Backup and security: digital records can be backed up; paper can be lost, damaged, or destroyed
Legibility: no illegible handwriting for inspectors to decipher
Making Tax Digital readiness: from 6 April 2026, MTD for Income Tax requires digital records for sole traders and landlords above the qualifying income threshold

When paper falls short

Paper stock books have served dealers well for decades, but they become problematic when:

Locating a specific item quickly during an inspection becomes difficult
Your stock volume grows beyond what a single ledger can handle
Producing reports for your accountant or HMRC is required
Cross-referencing purchases and sales across periods is impractical on paper
Making Tax Digital requires digital links between your records and submission software

Looking ahead: With Making Tax Digital for ITSA starting on 6 April 2026, sole traders and landlords with qualifying income above £50,000 must keep digital records, with additional thresholds phased from April 2027. Even if you are below the threshold, switching to a digital stock book now avoids a rushed migration later.

What an HMRC inspector looks for

HMRC VAT inspections can be triggered randomly or by specific risk indicators. When an inspector visits, your stock book will be one of the first things they examine. Here is what they are checking:

1. Completeness

Every item purchased under the margin scheme should have a corresponding stock book entry. Inspectors will cross-reference your stock book against:

Purchase invoices and receipts
Bank statements showing payments to suppliers
Sales records and till receipts
Auction house statements

Gaps in your records, where an item appears in your sales but not in your stock book, are a serious red flag.

2. Accuracy of descriptions

Inspectors check that item descriptions are specific enough to identify the goods. “Jewellery” or “antique” is not sufficient. HMRC expects descriptions that would allow someone to match the stock book entry to the actual item, such as:

“Victorian 15ct gold seed pearl brooch, hallmarked Birmingham 1897”
“Pair of George III silver candlesticks, London 1785, 12 inches”
“Rolex Submariner ref. 16610, serial number L-series, with box and papers”

3. Eligibility for the margin scheme

Not every purchase qualifies for the margin scheme, and an inspector is checking both limbs of the test. On the goods, they will look for stock that is outside the scheme whatever the invoice says: precious metals, investment gold, and precious stones do not qualify however you bought them. On the acquisition, an item you were charged VAT on when you bought it does not qualify. It is the purchase invoice that settles the second limb, not who the seller was — if the invoice shows VAT on the goods, the item is out, whether or not you could have recovered that VAT.

The routes below usually satisfy the acquisition limb, but none of them is a test in its own right. In each case what makes the item eligible is that the purchase invoice shows no VAT charged on the goods, and the goods limb still has to hold as well:

Items bought from private individuals or other non-VAT-registered sellers, where no VAT arises on the purchase in the first place
Items bought from another dealer selling to you under their own margin scheme. Where that dealer is VAT-registered, HMRC requires their invoice to carry one of the margin scheme legends — “margin scheme - second hand goods”, “margin scheme - works of art”, or “margin scheme - collectors’ items and antiques” — and to show no separate VAT
Items bought at auction where the auctioneer sold the goods under the auctioneers’ margin scheme. The buyer’s premium is part of the auctioneer’s own margin, with no VAT shown separately on it, so it does not stand in the way. But if the invoice shows VAT as a separate line on the goods, the auctioneer sold outside the margin scheme, VAT has been charged on the item, and it cannot go on yours — separate VAT on an auction invoice is the signal to check, not to ignore

4. Correct margin calculations

Inspectors verify that:

The purchase price in your stock book matches your purchase invoices
The selling price matches your sales records
The margin is calculated correctly (selling price minus purchase price)
VAT on the margin is one-sixth of the positive margin
Loss-making items show a nil margin (not a negative VAT figure)

5. Timeliness of record-keeping

HMRC expects records to be maintained contemporaneously: recorded at or near the time of the transaction, not reconstructed months later from memory. Inspectors may check dates and ask about your record-keeping process.

Common record-keeping mistakes

Based on HMRC guidance and common inspection findings, these are the mistakes dealers most frequently make:

1. Incomplete supplier details

Recording only a first name or a vague description like “dealer at Newark Fair” is not sufficient. HMRC requires the seller’s name in the stock book and their full address on the purchase invoice. If you buy from the same suppliers regularly, maintain a supplier register and reference it in your stock book.

2. Vague item descriptions

“Gold ring” or “painting” will not satisfy an inspector. Descriptions should include the material, period, maker or hallmark (where applicable), and any distinguishing features.

3. Missing purchase prices

Some dealers fail to record the purchase price at the time of acquisition, intending to fill it in later. This is risky. If you cannot prove what you paid, HMRC may treat the purchase price as zero, meaning VAT is due on the full selling price.

4. Mixing margin scheme and standard VAT items

If you sell some items under the margin scheme and others under standard VAT rules, your records must clearly distinguish between them. Inspectors will check that you are not applying the margin scheme to items you were charged VAT on when you bought them, or to goods the scheme does not cover in the first place.

5. Not recording unsold stock

Your stock book should contain all items currently in stock, not just those that have been sold. An inspector may conduct a stock check and compare what you have on the premises to what your records show.

6. Failing to record losses

Items sold at a loss must still be recorded with the correct purchase and selling prices. Some dealers omit these entries or record an incorrect margin. Even though no VAT is due on a loss, the record must be complete.

How GemJam keeps your stock book digital

GemJam was purpose-built for dealers of unique items: jewellery, antiques, watches, and luxury goods. Unlike generic accounting or inventory software, GemJam treats every piece in your stock as one-of-a-kind, with a stock level of zero or one.

The stock book fields, built in

GemJam’s item records are built around the fields HMRC requires for a stock book:

A unique stock number, assigned automatically when you add an item
Purchase date, price, and supplier details, recorded at the point of acquisition
A detailed item description, with space for materials, period, hallmarks, provenance, and condition
Photographs, as visual documentation supporting your written descriptions
Sale date, price, and buyer details, captured when you record a sale or generate an invoice
The margin and VAT due, which GemJam works out when an item sells, for the items you have flagged as margin scheme

Margin scheme compliance

You record each item’s VAT treatment in GemJam when you enter the purchase, and GemJam applies the treatment you recorded when the item sells, keeping margin scheme stock and standard-rated stock clearly separated in your records. Where the purchase data points one way, GemJam suggests a treatment and asks you to confirm it before the purchase saves; where the data does not settle it, the item is flagged for review rather than guessed at. The eligibility judgement stays yours, by design — you are the one holding the purchase invoice and the goods.

Reports and supporting records

When HMRC comes calling, GemJam can produce reports to support you through it:

A stock book export listing all items, current and sold, with the seller and buyer names, the purchase and sales invoice numbers, the purchase and sale figures, the margin, and the VAT due on it
Purchase and sale reports filtered by date range
Margin scheme calculations for any VAT period
A supplier register showing what you have bought from each supplier and when

Those come out in a clear, printable format, so there is no scrambling through paper files or reconstructing calculations from memory. The export now carries the seller and buyer names and the purchase and sales invoice numbers alongside the figures, the margin, and the VAT. It is still not your whole set of records on its own, though: your purchase and sales invoices are separately required and carry the seller and buyer addresses, which the export does not hold, so keep those alongside it. An inspection reaches wider again — as above, inspectors also cross-reference purchase invoices, bank statements, and auction house statements.

Digital stock records for Making Tax Digital

GemJam stores your stock book digitally from day one, with the purchase and sale figures held as data rather than as scanned paper, and the margin worked out from them. That is the stock-record part of the picture, and it is worth being precise about how much of MTD it covers: MTD for Income Tax asks for digital records of your business income and expenses generally, and the expense side runs well past the cost of stock to things like travel, office and financial costs, which you will be keeping somewhere other than GemJam. Sending your quarterly updates is a separate step again, through HMRC-compatible software. So treat GemJam as the stock-book piece rather than your whole set of MTD records, and check with your accountant or bookkeeping package what the rest of the picture needs to look like before the rules apply to you.

Get started with GemJam today →

Frequently asked questions

What records must be kept in an HMRC stock book?

For each item purchased under the VAT Margin Scheme, your stock book must record: a stock number, the date of purchase, the purchase invoice number (unless self-billed), the purchase price, the seller name, a description sufficient to identify the item, the date of sale, the sales invoice number, the selling price (or method of disposal), the buyer name, and the VAT margin calculation. Keep seller and buyer addresses on the corresponding purchase and sales invoices. HMRC requires these records to be kept for at least six years.

Does HMRC accept digital stock books?

Yes. HMRC accepts both paper and digital stock books, provided they contain all the required information. However, from 6 April 2026, Making Tax Digital for Income Tax requires digital records for sole traders and landlords with qualifying income above £50,000 (with wider thresholds phased later). Digital stock books also make it easier to produce reports for HMRC inspections.

How long must stock book records be kept?

HMRC requires you to keep VAT records, including your stock book, for at least six years. This applies to both current stock and items that have been sold. If you are under investigation, HMRC may ask to see records going back further.

What happens if my stock book is incomplete during an HMRC inspection?

If HMRC finds your stock book records are incomplete or inaccurate, you may lose the right to use the VAT Margin Scheme for those items. This means VAT would be calculated on the full selling price rather than just the margin, significantly increasing your tax liability. Repeated failures can result in penalties.

Can I use a spreadsheet as my HMRC stock book?

Yes, spreadsheets are acceptable as digital stock books provided they contain all the required fields and maintain an accurate audit trail. However, spreadsheets are prone to errors and do not provide the automated calculations or reporting that dedicated inventory software offers.

Is VAT Notice 718 still the guidance to follow?

No. VAT Notice 718 was withdrawn on 23 December 2021 and replaced by newer guidance. The current sources are VAT Margin Schemes on GOV.UK, Using the global accounting VAT margin scheme, and the stock book and invoicing conditions published as VAT tertiary legislation, which carry force of law under the VAT (Special Provisions) Order 1995. If your notes or your accountant still refer to Notice 718, check the point against the live guidance, because the wording has changed in places.

Do I need a separate stock book for items not on the margin scheme?

Items sold under standard VAT rules do not need to be in your margin scheme stock book. However, many dealers find it simpler to record all stock in one system and flag which items qualify for the margin scheme. This avoids confusion and makes record-keeping more straightforward during inspections.

For official HMRC guidance on the VAT Margin Scheme and stock book requirements, see VAT Margin Schemes: Keeping Records and the force-of-law conditions in VAT tertiary legislation: margin schemes. For Making Tax Digital, see GOV.UK: Use Making Tax Digital for Income Tax.

GemJam is inventory management software built specifically for UK dealers of jewellery, antiques, watches, and luxury goods, with built-in VAT Margin Scheme compliance and digital stock book functionality.

HMRC Stock Book Requirements: A Complete Guide for Second-Hand Goods Dealers