HMRC Notice 718 Margin Scheme

1. What is HMRC Notice 718?

Under UK tax legislation, HMRC Notice 718 outlines the VAT Margin Scheme for second-hand goods, works of art, collectors' items, and antiques. For mobile phone resellers, this scheme allows VAT-registered businesses to account for VAT only on the gross margin (the difference between what you paid for the handset and what you sold it for), rather than the full selling price.

Under the standard 20% VAT rate, the margin tax is calculated as exactly one-sixth (1/6th) of the gross profit margin. If a device is sold at a loss or at break-even, zero VAT is due.

2. Why Generic ERPs & POS Systems Fail at Notice 718

Standard e-commerce platforms (like Shopify or generic retail POS systems) assume all items are either zero-rated or subject to standard 20% output VAT on the total checkout value. Resellers forced onto these systems either:

• Overpay thousands of pounds in VAT to HMRC by charging 20% on the entire handset selling price.
• Spend dozens of hours every quarter manually matching IMEI purchase costs to sales receipts in tangled spreadsheets.
• Risk severe HMRC penalties due to missing sequential stock book ledgers or non-compliant purchase receipts.

3. How MobileStock Automates Compliance

MobileStock is engineered specifically around HMRC's strict second-hand record-keeping requirements:

• Individual IMEI Stock Book: Maintains a permanent, immutable record of intake date, purchase invoice reference, purchase price, supplier identity, and device IMEI.
• Automatic 1/6th Margin Calculation: When a device is sold across any channel (in-store counter, eBay, or Back Market), MobileStock matches the sale price with the exact landed intake cost and automatically calculates the VAT margin in real time.
• Compliant Sales Invoices: Emits customer receipts that include the mandatory HMRC wording ("Input tax cannot be claimed on this purchase under the margin scheme") without showing the margin or VAT amount to the retail buyer, as required by law.
• One-Click Accountant & MTD Exports: Download clean quarterly summaries and Making Tax Digital (MTD) spreadsheets with every IMEI, cost, sale price, and margin tax calculated ready for your accountant.

4. Eligible vs Non-Eligible Stock

The Margin Scheme applies to second-hand mobile phones purchased from:

• Private individuals (over the counter buybacks, trade-ins).
• Unregistered businesses.
• VAT-registered dealers selling to you under the Margin Scheme (with compliant Margin invoices).

Devices purchased with standard VAT (where input VAT is reclaimed) or under the Reverse Charge mechanism must be treated under standard VAT rules. MobileStock allows you to toggle tax classification on intake so your inventory ledger remains 100% compliant.

5. Disclaimer

MobileStock provides software automation and record-keeping tools to facilitate compliance with HMRC Notice 718. MobileStock is not an accounting firm or tax advisor. We recommend reviewing your business tax classification and margin scheme eligibility with a certified UK chartered accountant.