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.

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 stock book must go digital. The handwritten ledgers and paper stock books that many dealers have relied on for decades will no longer satisfy HMRC’s record-keeping requirements.
Quarterly reporting replaces the annual return. Instead of filing a single Self Assessment return each year, you’ll send summary updates to HMRC every quarter.
Digital links are required. Data must flow digitally between your records and the software you use to submit to HMRC — no more manually copying figures from a notebook.

For dealers operating under the VAT Margin Scheme, this means your margin calculations, purchase records, and sale records all need to exist in a digital format that HMRC-compatible software can read.

Important: The VAT Margin Scheme itself is not changing. You can still calculate VAT on the profit margin rather than the full selling price. What is changing is how you keep and submit those records.

Timeline and Deadlines

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

Deadline	Who Must Comply
April 2026	Self-employed individuals and landlords with annual income above £50,000
April 2027	Self-employed individuals and landlords with annual income above £30,000
April 2028	Self-employed individuals and landlords with annual income above £20,000

What counts as income? For dealers, this is your gross business income (total sales), not your profit. If your annual sales exceed £50,000, you’ll need to comply from April 2026.

Key Dates to Remember

Now — 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 message is clear: 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 overlapping regimes: MTD for ITSA (income and expenses) and the VAT Margin Scheme (detailed per-item records). Here’s what each requires:

Purchase Records (VAT Margin Scheme)

Every item you acquire must have a digital record containing:

Date of purchase
Supplier details (name and, where relevant, address)
Description of the item (sufficient to identify it)
Purchase price (what you paid)
Any additional costs (restoration, repair, auction fees)

Sale Records (VAT Margin Scheme)

When you sell an item, you must record:

Date of sale
Buyer details (where applicable)
Description of the item
Sale price
VAT treatment (margin scheme, standard rate, or exempt)

Margin Scheme Records

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

Margin calculation for each item (sale price minus purchase price)
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 Digital Stock Book

For many dealers, the stock book is the heart of their record-keeping. Under MTD, your stock book must be:

Maintained digitally — not on paper
Updated in real time or close to it — not reconstructed at year-end
Capable of producing reports that can be submitted to HMRC
Linked digitally to your submission software

This is where many dealers will feel the biggest change. If you’ve been running your business from a leather-bound stock book for the past twenty years, April 2026 is the deadline to go digital.

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 requires detailed record-keeping.

A Quick 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. What changes is that:

All calculations must be digital. No more working out margins on paper or in your head.
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.

HMRC has confirmed that the margin scheme will continue to operate as before — the obligation is simply to maintain records digitally rather than on paper.

Software Requirements

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

HMRC-recognised 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 (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 understands that every item in your stock is 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 calculates the margin on every sale automatically. It knows which items qualify for the margin scheme, tracks your VAT liability per period, and produces the reports you need for your VAT returns.

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.

Quarterly Reporting Ready

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 April 2026 or April 2027 is your deadline, here’s how to prepare:

Step 1: Check Your Threshold (Now)

Review your gross business income for the current and previous tax years. If your annual sales exceed £50,000, you must comply from April 2026. If they exceed £30,000, your deadline is April 2027.

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 (Deadline)

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 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 with an annual income above £50,000. If your dealing business meets this threshold, you must comply from that date. 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. However, your margin calculations, purchase records, and stock books must be maintained digitally using HMRC-compatible software rather than paper records.

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. For second-hand goods dealers who also use the VAT Margin Scheme, additional per-item records are required: purchase price, sale price, margin calculation, item descriptions, and supplier and buyer details. A digital stock book is essential for margin scheme compliance.

Will paper stock books still be accepted under MTD?

No. HMRC will no longer accept paper stock books as sufficient record-keeping under MTD for ITSA. All records must be maintained digitally and be capable of being submitted through compatible software.

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 has confirmed that people brought into MTD for Income Tax on 6 April 2026 will not receive penalty points for late quarterly updates during their first 12 months. However, penalties for late tax returns, incorrect records, and failure to maintain adequate digital records still apply from the outset. After the initial grace period, the points-based penalty system means repeated late submissions lead to escalating fines.

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: Making Tax Digital for Income Tax. For information on the VAT Margin Scheme, see GOV.UK: VAT Margin Scheme.

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