What Documentation to Keep for a Marginal VAT Audit

A margin scheme invoice looks simple — one total price, a line stating "margin scheme — second-hand goods," no VAT breakdown. That simplicity is exactly what makes it fragile under audit. Because there is no VAT line to check, a tax authority reviewing a margin scheme reseller has one real question: can you prove, unit by unit or period by period, that the scheme applied correctly in the first place? Resellers who cannot answer that with paperwork on hand, not paperwork they promise to find, are the ones who end up reassessed at standard VAT rates plus interest. This guide covers exactly what to keep, in what form, and for how long.

What Triggers a Margin Scheme Audit

Margin scheme resellers get audited for reasons that have little to do with wrongdoing. A VAT return showing a low output VAT figure relative to declared turnover is a standard risk-scoring trigger, because that is precisely what a correctly-run margin scheme produces — tax authorities know this and check it rather than skip it. Cross-border stock movements, a sudden jump in purchase volume, or a supplier relationship that itself gets audited can also pull a reseller in as a related party. None of this means anything is wrong. It means the burden of proof sits with you, and it sits there from the moment you buy the stock, not from the moment an audit letter arrives.

The Purchase Side: What a Valid Margin Scheme Invoice Needs

Every unit you resell under the margin scheme has to trace back to a purchase invoice that itself qualifies the stock for the scheme under Article 314 of the VAT Directive 2006/112/EC. The invoice needs to come from a private individual, another margin scheme dealer, or another category of non-taxable or VAT-exempt seller, and it needs to say so. In practice, keep:

• The original purchase invoice or contract, showing the seller, the date, the unit(s) covered, and the price paid.
• Explicit margin scheme wording on the supplier's invoice. An invoice that is silent on VAT treatment, or that looks like a standard VAT invoice with the VAT stripped out, is not proof of margin scheme eligibility — it is a red flag.
• A unit-level link between the purchase invoice and the IMEI, wherever a single invoice covers multiple phones. A batch invoice for 200 units with no IMEI breakdown makes it impossible to prove which specific unit in your current stock the invoice covers.

If your supplier operates 100% margin scheme, this step largely takes care of itself, because every invoice arrives in the same format. Mixed-scheme suppliers require you to check this on every purchase, not just the first one — see our guide to Marginal VAT vs Standard VAT for how the two invoice types differ and why they cannot be mixed on the same unit.

The Sales Side: What Your Own Invoices Must Show

Your own resale invoices need the mirror-image treatment: the wording "margin scheme — second-hand goods" (or your local-language equivalent) stated explicitly, a total price with no separate VAT line, and enough detail to identify the specific unit sold — IMEI, model, and grade at minimum. An auditor reconciling your sales ledger against your purchase ledger needs to walk from a sale back to its matching purchase without guessing. If your invoicing software defaults to showing a VAT breakdown, check that margin scheme sales are flagged correctly at the point of invoicing, not corrected after the fact — a batch of invoices with the wrong template is a documentation failure you created, not one a supplier handed you.

Per-Unit vs Global Margin Method — and Why It Changes What You Keep

Article 318 of the VAT Directive allows a simplified global margin method as an alternative to calculating margin unit by unit. Under the global method, you total your qualifying purchases and qualifying sales for a VAT period and calculate VAT on the net margin across the whole batch, which suits high-volume, low-value stock where per-unit tracking is impractical. It does not reduce what you need to keep — you still need a complete purchase ledger and sales ledger for the period, itemised enough that an auditor can verify the totals — but it removes the requirement to match every individual sale to its individual purchase invoice. Decide which method you use before you need it in an audit, because switching methods retroactively for stock already sold is not generally permitted, and state your chosen method consistently on your VAT filings.

How Long to Retain Records

Retention periods for VAT-relevant records are set at member state level, not by the VAT Directive itself, and they vary. Many EU countries set the general VAT record retention period at five years; a smaller number, Estonia among them, set it at seven. Businesses operating cross-border should retain records for the longest period that applies to any jurisdiction where they file, since an audit can look back as far as local law allows. Keep purchase invoices, sales invoices, and any IMEI-level stock ledgers together and cross-referenced, in a format you can still open and search in five to ten years — a spreadsheet export sitting on a drive that no longer exists is not a record.

The Checklist Auditors Actually Ask For

When a margin scheme audit request lands, it typically asks for the same core set of documents, so building this file as you go is faster than reconstructing it later:

• A full purchase ledger for the audit period, with supplier name, date, price, and unit identifiers.
• The underlying purchase invoices, matched to ledger entries, each showing margin scheme eligibility explicitly.
• A full sales ledger for the same period, in the same unit-identified format.
• The underlying sales invoices, each stating margin scheme treatment.
• A reconciliation showing how the declared VAT was calculated — per unit or globally, whichever method you use, applied consistently.
• Supplier verification records — VAT number checks, business registry lookups — that support why a given supplier's invoices were accepted as margin-scheme-qualifying in the first place. Our Marginal VAT guide covers how the scheme applies across EU markets in more depth, and current margin scheme stock with full invoicing is available at shop.smartchoice.ee/stock.

Building this file at the time of each purchase and sale, rather than assembling it retroactively when a letter arrives, is the difference between an audit that closes in a week and one that drags on for months while you chase suppliers for invoices they may no longer have.

FAQ

How long must I keep margin scheme invoices for a VAT audit?

Most EU member states require VAT-relevant records to be kept for five to ten years, and several set the longer figure specifically for goods bought and sold under a special scheme. Estonia requires seven years. Check your own country's retention period rather than assuming five, and keep records for at least as long as the longest period that applies to any country where you have a VAT obligation.

What happens if I can't produce a valid purchase invoice for a unit under audit?

An auditor who cannot match a sold unit to a qualifying purchase invoice will typically treat that sale as ineligible for the margin scheme and assess standard VAT on the full sale price instead of the margin, plus interest and often a penalty. This is assessed unit by unit, so a handful of undocumented purchases in an otherwise clean ledger creates a proportional liability rather than voiding the whole scheme.

Do I need to track margin per unit, or can I use the global margin method?

Either is permitted under Article 318 of the VAT Directive, but they carry different documentation burdens. Per-item margin requires a purchase invoice and a sale record matched to each unit. The global method calculates VAT on the total margin across a VAT period rather than unit by unit, which suits high-volume, low-value stock, but it still requires a full purchase ledger and sales ledger for the period — it removes per-unit matching, not the underlying records.

What's the single most common reason margin scheme resellers fail a VAT audit?

Missing or incomplete purchase-side documentation — a supplier invoice that does not state the margin scheme explicitly, or stock bought with no invoice at all. Sales-side paperwork is usually fine because resellers control it directly; the purchase side depends on a supplier's invoicing discipline, which is exactly why supplier vetting and invoice review at the time of purchase matter more than any filing system built afterward.

Does a margin scheme audit affect input VAT I've claimed elsewhere?

It can. If an auditor reclassifies margin scheme purchases as ineligible, any input VAT that should have applied instead is not automatically recoverable retroactively, since it depends on the supplier issuing a corrected invoice. This is one reason mixed-scheme stock — some units bought margin scheme, some standard VAT — needs especially careful separation in your records; conflating the two is a frequent source of audit findings.

This guide is general information for European resellers, not legal or tax advice. Retention periods, audit procedures and their enforcement differ between member states, so confirm your own obligations with your accountant or tax adviser.