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.

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.

Under VAT Notice 718, 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:

Proving eligibility — demonstrating that each item qualifies for the margin scheme (i.e. it was purchased from a source where VAT was not recoverable)
Calculating VAT correctly — providing the purchase price and selling price needed to calculate the margin, and therefore the VAT due

HMRC does not prescribe a specific format for your stock book. It can be a physical ledger, a spreadsheet, or dedicated software — as long as it contains all the required information 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

Stock number — a unique reference for each item
Date of purchase
Purchase invoice number — unless you issue the purchase invoice yourself
Purchase price — what you actually paid, including any buyer’s premium at auction
Seller name — as required in the stockbook (keep the seller address on your purchase invoice)
Description of the item — sufficient to identify it (e.g. “18ct gold diamond ring, 0.50ct solitaire” rather than just “ring”)

Sale Records

Date of sale
Sales invoice number
Selling price or method of disposal — if the item was not sold (e.g. scrapped, donated), the method of disposal must be recorded
Buyer name — as required in the stockbook (keep the buyer address on your sales invoice)

Margin Calculation

Purchase price (from the stock book entry)
Selling price
Margin — the difference between selling price and purchase price
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 currently accepts both paper and digital stock books. There is no requirement to use software — 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 at the click of a button
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 — items that appear 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. Items purchased from VAT-registered businesses who charged VAT on the full price (and issued a VAT invoice) do not qualify. Inspectors will check that you are not incorrectly applying the margin scheme to items where input VAT was recoverable.

Eligible purchases include:

Items bought from private individuals (non-VAT-registered sellers)
Items bought from other margin scheme dealers (where the invoice states “margin scheme — no VAT recoverable”)
Items bought at auction where the auctioneer applied the margin scheme

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 — that is, 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 where you reclaimed input VAT on purchase.

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 Maintains a Compliant Digital Stock Book

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

Every Required Field, Built In

GemJam’s item records include all the fields HMRC requires for a compliant stock book:

Unique stock number — assigned automatically when you add an item
Purchase date, price, and supplier details — recorded at the point of acquisition
Detailed item description — with space for materials, period, hallmarks, provenance, and condition
Photographs — visual documentation that supports your written descriptions
Sale date, price, and buyer details — captured when you record a sale or generate an invoice
Automatic margin calculation — GemJam calculates the margin and VAT due on every sale

Margin Scheme Compliance

GemJam tracks which items qualify for the VAT Margin Scheme and which are on standard VAT. The system flags items correctly and calculates VAT accordingly, so there is no risk of accidentally applying the wrong scheme.

Inspection-Ready Reports

When HMRC comes calling, GemJam can produce:

A complete stock book listing all items (current and sold)
Purchase and sale reports filtered by date range
Margin scheme calculations for any VAT period
Supplier and buyer registers

Everything an inspector needs is available in a clear, printable format — no scrambling through paper files or reconstructing records from memory.

Built for Making Tax Digital

GemJam stores all records digitally from day one, with automatic calculations and digital links between your stock book and reporting. When MTD for ITSA applies to your business, your records are already in the format HMRC requires.

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.

What is VAT Notice 718 and why does it matter?

VAT Notice 718 is the official HMRC guidance document for the VAT Margin Scheme. It sets out the rules for who can use the scheme, what records must be kept, how margins are calculated, and the requirements for stock books. All dealers using the margin scheme should be familiar with this notice.

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. For information on Making Tax Digital, see GOV.UK: 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