Create the invoice. Update the stock book automatically.

1. 01

   What the law asks for

   VAT Notice 718/1 was withdrawn on 23 December 2021. What replaced it is a set of gov.uk guidance pages and, for the parts that carry force of law, the VAT tertiary legislation on margin schemes — made under section 50A of the VAT Act 1994 and the orders beneath it.

   It says, in terms, that you must maintain a stock book; that each purchase gets a unique sequential stock number noted on both the purchase and the sales invoice; and it sets out what the book records on the way in and on the way out. For vehicles it adds the registration, or the VIN where there is none, and a description of make, model and colour.

2. 02

   The sold half is written from the invoice

   Raise the invoice against a car and that car’s row is completed from it: date of sale, sales invoice number, buyer, selling price, the margin, and the VAT due on it. You are not keeping two records in step by hand.

   A car sold at a loss shows nil VAT rather than a negative, and losses are not set against profits on other cars — which is the rule, and which a spreadsheet will happily let you get wrong.

3. 03

   What is checked before an invoice goes out

   Before an invoice is issued, the system checks it carries what a margin scheme invoice must: the buyer’s name and address, the car’s description and registration, its stock book number, and your registered name, address and VAT number. If anything is missing it is not issued, and you are told what. The VAT is not shown separately, because on a margin scheme invoice it must not be.

   It will not issue a margin scheme invoice for a car the stock book has as bought with VAT, or a second sale of a car whose first invoice still stands. And it handles the parts of a real deal: part exchange allowance, outstanding settlement, deposit, and how the balance was paid.

   The handover pack prints with it, so the paperwork that has to be right when the car leaves goes with the car.

4. 04

   Why it is worth the care

   HMRC’s own manual is blunt about what happens when the records do not support the scheme: the business forfeits the right to use it for those transactions, and the tax is then due on the full selling price rather than on the margin.

   On a car bought at £6,000 and sold at £7,200 that is the difference between £200 and £1,200.

From the blog

• The sale-day paperwork chain, invoice, handover and stock book without the duplicationHow one sale should flow from the vehicle record to the invoice, the handover paperwork and the stock book, with a worked VAT margin scheme example.→
• VAT margin scheme stock books, what used car dealers need to knowWhat a VAT margin scheme stock book must record for each used car, what goes on the sales invoice, the common mistakes, and where software can help.→
• Photograph, check, save, handling supplier invoices without the paperwork pilePhotograph a supplier invoice, check the draft against the paper, then save it: a four-step routine for a garage, and what to check on every line.→
• When the Wi-Fi drops, why offline-first software suits forecourt lifeWhat a dealer management system that works offline keeps going when the internet drops, what still needs a connection, and the check after you synchronise.→

Read next

• A dealer management system that does the remembering.Stock, invoicing, the VAT margin scheme stock book, handover packs, a test drive diary and history checks: one back office for independent used car dealers.→
• Run checks and valuations from your dashboard.Vehicle history checks, what the trade calls an HPI check, and trade and retail valuations: pay as you go, bought and run inside your dealer software.→
• £179, £279 or £449 a month.No build fee. £179, £279 or £449 a month by forecourt size, website and vehicle lookups included. Checks and valuations pay as you go. No VAT charged.→