Making Tax Digital for Second-Hand Goods Dealers: Your Complete Guide

If you deal in second-hand goods, whether that’s jewellery, antiques, watches, vintage furniture, or any other unique items, Making Tax Digital (MTD) is about to change how you manage your business records. From April 2026, many sole trader dealers will need to keep digital records and submit quarterly updates to HMRC.

This guide explains exactly what MTD for Income Tax Self Assessment (ITSA) means for second-hand goods dealers, what you need to do to prepare, and how to make the transition as smooth as possible. If you use the margin scheme, GemJam handles the margin scheme automatically while keeping your records digital and MTD-ready.

What Making Tax Digital for ITSA means for second-hand goods dealers

Making Tax Digital is HMRC’s programme to modernise the UK tax system. While MTD for VAT has been in place since 2019, MTD for Income Tax Self Assessment (ITSA) extends digital requirements to self-employed individuals and landlords.

For second-hand goods dealers, this has specific implications:

Your income and expense records must go digital. The handwritten ledgers many dealers have relied on for decades will no longer satisfy MTD for ITSA, which requires income and expenses to be recorded digitally and categorised.
Quarterly updates are added to the annual return, not substituted for it. You send summary updates to HMRC every quarter, and after the end of the tax year you still make any adjustments and submit a final declaration through your software.
Digital links are required. Once your records are digital, data must flow digitally between them and the software you use to submit to HMRC, rather than being re-keyed by hand from one system into another.

For dealers operating under the VAT Margin Scheme, the practical consequence is that your margin calculations, purchase records, and sale records are far easier to work with when they already exist in a digital format that HMRC-compatible software can read.

Important: The VAT Margin Scheme itself is not changing, and neither are its record-keeping rules. You can still calculate VAT on the profit margin rather than the full selling price, and HMRC still accepts the margin scheme stock book in written or electronic form. MTD for ITSA is a separate obligation covering your income tax records.

Timeline and deadlines

MTD for ITSA is being rolled out in phases based on qualifying income thresholds:

MTD starts	Who must comply
April 2026	Qualifying income over £50,000 on your 2024 to 2025 tax return
April 2027	Qualifying income over £30,000 on your 2025 to 2026 tax return
April 2028	Qualifying income over £20,000 on your 2026 to 2027 tax return

What counts as qualifying income? HMRC defines it as your total turnover from self-employment and property income, before expenses, taken from the tax return you submitted in the previous tax year. It is not your profit, and it is not your dealing sales in isolation: if you also let out a property, that rental income counts towards the same threshold. Reading your shop takings alone can put your start date a full year out.

Key dates

Now to March 2026: prepare your systems and choose compatible software
April 2026: MTD for ITSA goes live for the first group
Quarterly: submit updates through compatible software (dates depend on your accounting period)
End of tax year: make any required adjustments and submit your final declaration

The sooner you start preparing, the smoother the transition will be.

What records you need to keep digitally

MTD for ITSA requires you to maintain digital records of your business income and expenses, categorised so your software can produce quarterly summaries for HMRC. For most second-hand goods dealers, the record-keeping obligations come from two separate regimes, and it is worth keeping them apart in your head: MTD for ITSA (income and expenses, which must be digital) and the VAT Margin Scheme (detailed per-item records, which HMRC accepts in written or electronic form). Here’s what each requires:

Purchase records (VAT Margin Scheme)

Every item you acquire must have a stock book record containing:

A unique stock number, in numerical sequence
The date of purchase
The purchase invoice number, unless you made out the purchase invoice yourself
The seller’s name (their address belongs on the purchase invoice)
A description of the item, sufficient to identify it
The purchase price, meaning the total price 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 auction services are recorded as business expenses, not folded into the purchase price

Sale records (VAT Margin Scheme)

When you sell an item, you must record:

The date of sale
Buyer details, where applicable
A description of the item
The sale price
The VAT treatment (margin scheme, standard rate, or exempt)

Margin scheme records

If you use the VAT Margin Scheme, you also need:

A margin calculation for each item (sale price minus purchase price)
The VAT on the margin (1/6 of the positive margin)
Running totals for your VAT return periods
Clear identification of which items qualify for the margin scheme

The stock book, and why dealers digitise it anyway

For many dealers, the stock book is the heart of their record-keeping. MTD for ITSA does not make it a digital document: HMRC’s margin scheme conditions say you must maintain a stock book in written or electronic form, and that is unchanged. A leather-bound ledger that contains every required field is still a compliant stock book.

What MTD for ITSA does change is everything downstream of it. Your income and expenses have to be kept as digital records in compatible software, which every three months adds them up into the totals you send HMRC as a quarterly update. The records stay with you: HMRC does not receive individual receipts or invoices, only the category totals. A paper stock book means somebody re-keys the underlying figures each quarter, and keeping it electronically removes that step. HMRC’s digital links requirement is a separate point: it governs how records move between software products, rather than forbidding you from typing up a paper ledger in the first place. So dealers digitise the stock book for practical reasons rather than because HMRC demands it:

Updated in real time, or close to it, rather than reconstructed at year-end
Capable of producing the summaries your quarterly updates need
Digitally linked to your submission software, with no re-keying

If you’ve been running your business from a leather-bound stock book for the past twenty years, you are not being forced to abandon it. You will, however, need digital income and expense records alongside it from your MTD start date.

How the margin scheme works under MTD

The VAT Margin Scheme is particularly important for second-hand goods dealers. It allows you to pay VAT only on the profit margin of each sale, rather than the full selling price. This can significantly reduce your VAT liability, but it does require detailed record-keeping.

A worked example

You buy a vintage watch for £800 and sell it for £1,200.

Margin: £1,200 − £800 = £400
VAT due: £400 ÷ 6 = £66.67

Without the margin scheme, VAT would be calculated on the full £1,200 selling price (£200 at 20%), so the scheme saves you £133.33 on this single transaction.

What changes under MTD

The margin scheme calculation itself doesn’t change, and neither do the margin scheme’s own record-keeping conditions. What changes is that:

Your income and expense records must be digital. Your sale proceeds and business expenses have to be recorded digitally in compatible software. Keep the two regimes apart when you do it: your income tax turnover is based on the sale proceeds of each item, not on the margin. If you use the cash basis and are VAT registered, HMRC lets you choose whether to include or exclude VAT in the income you declare, and including it makes it count towards your qualifying income. Either way the figure is the sale proceeds, not the margin scheme margin. The margin is a VAT computation and belongs in your VAT records. Recording only margins as your income would understate your turnover.
Records must be kept in compatible software. Spreadsheets are acceptable only if they have digital links to your submission software.
Quarterly summaries must be submitted. Your software must be able to produce and submit summary figures to HMRC every quarter, and you still submit a final declaration after the tax year ends.

The margin scheme continues to operate as before. The new obligation is an income tax one, not a VAT one.

Software requirements

To comply with MTD for ITSA, you need software that is:

Recognised by HMRC as compatible with Making Tax Digital
Capable of maintaining digital records of income and expenses
Able to submit quarterly updates directly to HMRC
Able to receive information from HMRC, such as tax calculations

For second-hand goods dealers specifically, you should also look for software that:

Handles margin scheme calculations automatically
Maintains a digital stock book with purchase and sale records
Tracks item-level detail, which is essential for unique, one-of-a-kind stock
Produces VAT reports that account for the margin scheme
Supports digital links, so data flows without manual re-entry

Tip: Start evaluating software now, well before April 2026. Migrating your records takes time, and you’ll want to be comfortable with the system before it becomes a legal requirement.

You can check whether software is compatible with MTD on GOV.UK’s list of MTD-compatible software.

How GemJam helps you comply

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

Here’s how GemJam supports your MTD compliance:

Digital stock book

GemJam maintains a complete digital stock book automatically. Every item you add is tracked from purchase through to sale, with:

Purchase price and supplier details
Item description, photographs, and provenance
Sale price and buyer details
Automatic margin calculation

VAT Margin Scheme compliance

GemJam works out the margin scheme VAT when an item sells, for the items you have flagged as margin scheme. Standard-rated and imported stock is taxed under the normal rules instead. Your VAT liability is tracked per period and the reports you need for your VAT returns are generated from the same records.

Digital record-keeping

All your records are stored digitally from the moment you enter them. There’s no paper step, no manual transcription, and no risk of data entry errors from copying figures between systems.

Ready for quarterly reporting

GemJam produces summary reports of your income and expenses that are ready for quarterly submission. Your data is always up to date and in the format required by HMRC.

Built for dealers, not accountants

Many MTD-compatible software packages are designed for accountants or general businesses. GemJam is designed for dealers. The interface reflects how you actually work: browsing your stock, recording purchases from fairs and auctions, generating invoices for private sales.

Get started with GemJam today →

Step-by-step preparation guide

Whether MTD starts for you in April 2026 or April 2027, here’s how to prepare:

Step 1: check your threshold (now)

Look at the tax return you submitted for the previous tax year and add up your qualifying income: total turnover from self-employment and property, before expenses. If your 2024 to 2025 return showed qualifying income over £50,000, you must comply from April 2026. Over £30,000 on your 2025 to 2026 return means MTD applies to you from April 2027. If you have income from more than one source, work from the return rather than from your dealing sales alone.

Step 2: choose your software (3–6 months before)

Research and select MTD-compatible software that meets your needs as a dealer. Key considerations:

Does it handle the margin scheme?
Can it maintain a digital stock book?
Does it track individual items (not just totals)?
Is it HMRC-recognised for MTD for ITSA?

Step 3: migrate your records (2–3 months before)

Transfer your existing stock book and transaction history into your chosen software. This is often the most time-consuming step, so don’t leave it until the last minute.

Step 4: run in parallel (1–2 months before)

Run your new digital system alongside your existing process for at least one month. This helps you catch any gaps and build confidence in the new system.

Step 5: go live (when MTD starts)

Switch fully to digital record-keeping. Submit your first quarterly update through your compatible software.

Step 6: stay current (ongoing)

Enter transactions as they happen, not in batches at the end of the quarter. Real-time record-keeping is not just an HMRC requirement; it also gives you a clearer picture of your business at all times.

Don’t wait until the deadline. Dealers who prepare early avoid the rush, get better support from their software provider, and have time to iron out any issues before compliance becomes mandatory.

Join GemJam and start your digital transition →

Frequently asked questions

When does Making Tax Digital for ITSA start for second-hand goods dealers?

MTD for ITSA begins in April 2026 for self-employed individuals and landlords whose qualifying income was over £50,000. Qualifying income is your total turnover from self-employment and property, before expenses, taken from the tax return you submitted for the previous tax year. The April 2026 start date is therefore set by your 2024 to 2025 return, not by your dealing sales alone. Lower thresholds are being phased in from April 2027.

Can I still use the VAT Margin Scheme under Making Tax Digital?

Yes. The VAT Margin Scheme continues to operate under MTD, and its record-keeping rules are unchanged: HMRC still requires the margin scheme stock book in written or electronic form. What MTD for ITSA adds, if you are in scope, is a separate obligation to keep digital records of your business income and expenses and to send quarterly updates using compatible software.

Do I need to submit records to HMRC quarterly under MTD?

Yes. Under MTD for ITSA, you must send quarterly updates to HMRC through compatible software, summarising your income and expenses. At the end of each tax year, you make any required adjustments and submit a final declaration through your software.

What records do second-hand goods dealers need to keep digitally?

MTD for ITSA requires digital records of your business income and expenses — categorised so your software can produce quarterly summaries. The VAT Margin Scheme is a separate regime with its own per-item records: purchase price, sale price, margin calculation, item descriptions, and seller and buyer names. HMRC accepts that stock book in written or electronic form, but a digital stock book is the practical way to feed the digital records MTD requires.

Will paper stock books still be accepted under MTD?

Yes, for VAT purposes. HMRC requires the margin scheme stock book in written or electronic form, and MTD for ITSA does not change that. What MTD for ITSA does require, if you are in scope, is that your business income and expenses are kept as digital records and submitted through compatible software, so a paper stock book still has to be transcribed into digital records for your quarterly updates.

What software do I need for Making Tax Digital as a dealer?

You need HMRC-recognised MTD-compatible software that can maintain digital records and submit quarterly updates. For second-hand goods dealers, the software should also handle margin scheme calculations and digital stock book functionality.

What happens if I do not comply with MTD for ITSA?

HMRC’s penalties guidance says there are no penalties for missing a quarterly update deadline for the 2026 to 2027 tax year, the first year for people brought in on 6 April 2026. That relief is specific to quarterly updates: late submission penalty points still apply to your tax return, and late payment penalties apply separately and are not points based. From 2027 to 2028 onwards, each missed quarterly update or tax return deadline earns a penalty point, and at the threshold of 4 points you get a £200 penalty, plus £200 each time you miss another deadline after that.

How does GemJam help with Making Tax Digital compliance?

GemJam maintains a complete digital stock book with purchase prices, sale prices, and automatic margin calculations. All records are stored digitally in a format compatible with MTD requirements, so your data is always ready for quarterly submissions. Start your free trial →

For official guidance on Making Tax Digital, visit GOV.UK: Use Making Tax Digital for Income Tax, and in particular who needs to use it and when and sending quarterly updates. For the VAT Margin Scheme, see GOV.UK: VAT Margin Schemes and the stock book conditions in VAT tertiary legislation: margin schemes.

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 record-keeping.

Making Tax Digital for Second-Hand Goods Dealers: What You Need to Know for 2026