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HMRC internal manual

VAT Margin Schemes

Basic principles: Records and accounts

The record-keeping, invoicing and accounting requirements of the margin schemes are set out in full in Notice 718 The VAT Margin Scheme and global accounting, which has legal force and supplements the law. 

All records and accounts must be retained for 6 years. With effect from January 2002, if a trader has stock on hand which he obtained more than six years ago, he must retain all the evidence, which will show that the goods are eligible.

The Law

The VAT (Special Provisions) Order 1995 (SI 1995/1268) Article 12 governs the relief and states:

Relief for certain goods

    • (1) Without prejudice to article 13 below and subject to complying with such conditions as the Commissioners may direct in a notice published by them for the purposes of this Order or may otherwise direct and subject to paragraph (4) below, where a person supplies goods of a description in paragraph (2) below, of which he took possession in any of the circumstances set out in paragraph (3) below, he may opt to account for the VAT chargeable on the supply on the profit margin on the supply instead of by reference to its value.

(2) The supplies referred to in paragraph (1) above are supplies of

(a) works of art, antiques and collectors’ items;

(b) second-hand goods.

The law relating to second-hand motor cars

Second-hand motor cars are covered in article 8(1) of the VAT (Cars) Order 1992 (SI 1992/3122).

Margin scheme record-keeping requirements

The record-keeping requirements are designed to provide a clear audit trail and a means of checking transactions.

You should be satisfied that documentation provides reasonable evidence that the goods are eligible for the scheme and that a genuine margin can be established. (VATMARG10000 covers incomplete records and VATMARG08150 covers incomplete records for second-hand vehicles.)

Acceptable records

Second-hand schemes provide relief from the normal VAT system, and the onus is on the trader to establish an entitlement to this relief by keeping (or reconstructing) evidence which demonstrates the margin which was achieved for each eligible transaction.

The orders governing the relief (detailed at VATMARG01150) allow its application where the trader keeps the records specified in Notice 718. They do not give HMRC discretion to accept records other than those specified in the notice.

VATMARG10000 gives more detail on acceptable records / evidence and assessments.

While traders should be urged to maintain the records specified in Notice 718, you should always allow time in which to reconstruct missing records (see VATMARG10000).

Goods on sale or return

A record must be kept of goods on sale or return.

Details of the records required can be found in Notice 718.