No. Consigned stock is not your asset: the consignor owns it until it sells, so it stays on their balance sheet and you record it in a memorandum stock list, not in inventory. When it sells, the consignor's share is a liability you owe them and only your commission is income. For VAT, either you are an agent and account for VAT on your commission only (VAT Notice 700 section 22), or you sell in your own name and HMRC treats the goods as supplied to you and by you, in which case VAT Notice 718 section 17 lets you use the margin scheme so the VAT still falls only on your commission. Which one you are is set by your agreement and your invoices.
Is consignment inventory an asset?
Not yours. Under UK GAAP (FRS 102), inventory is recognised by the party that bears the risks and rewards of ownership, and under the revised revenue section that applies to periods beginning on or after 1 January 2026, an entity that arranges for another party to provide goods is an agent and recognises only its fee. A consignee who can return unsold goods, does not bear price risk and does not pay until the item sells has not bought anything. The consignor keeps the asset; you keep a list.
This matters in three places. Your stock valuation at year end excludes consigned items. Your insurance schedule needs a separate "goods in trust" figure because the consignor's items are not "stock" to your insurer either. And your VAT registration threshold is measured on your taxable turnover - which, if you are a true agent, is your commission, not the gross sales that pass through your till.
What you do need is the memorandum record: consignor, item, date in, agreed price, split, location, status. It is not a financial asset but it is a legal liability - you are answerable for the item - and it is the source document for every payout.
How do you book a consignment sale?
Two models. Decide which one you are before the first sale and use the same one for all of them.
Model A - agent in the consignor's name. The sale is between the consignor and the buyer; you collect the money and take a fee. A £1,000 bag sold at 30% commission:
| Entry | Debit | Credit |
|---|---|---|
| Bank | £1,000 | |
| Consignor payable (liability) | £700 | |
| Commission income | £250 | |
| VAT on commission (output) | £50 |
You recognise £250 of revenue. The £700 is never your income and never your cost of sales. When you pay the consignor, debit the liability and credit bank. If the buyer returns the bag, reverse all four lines.
Model B - agent in your own name (undisclosed agent), margin scheme. You invoice the buyer in your own name, so for VAT the goods are treated as supplied to you and by you. Same bag, same 30%:
| Entry | Debit | Credit |
|---|---|---|
| Bank | £1,000 | |
| Sales (margin scheme, VAT-inclusive) | £1,000 | |
| Purchases - consigned goods | £700 | |
| Consignor payable | £700 | |
| VAT on margin (output) | £50 | |
| Sales (VAT element of margin) | £50 |
Your purchase price is the £1,000 received less your £300 charge, so the margin is £300 and the VAT is one-sixth of it, £50. Revenue is £1,000 gross and cost of sales £700, which makes your turnover look larger than in Model A - relevant for the registration threshold - but the VAT bill is identical.
What not to do: sell in your own name, skip the margin scheme records, and account for VAT on the full £1,000. That is £166.67 of VAT instead of £50, and it is what happens by default if the stock book is not kept.
Are you an agent or a principal for VAT?
VAT Notice 700, section 22 gives the test. You are an agent if you act for a principal in arranging supplies, you can show HMRC you are arranging transactions for the principal rather than trading on your own account, you are not the owner of the goods, and you do not alter the nature or value of the supply between the principal and the third party. Your supply is your service to the principal, and paragraph 22.4.1 says that where the supply you arrange is taxable, your service in arranging it is standard-rated. So your commission carries 20% VAT (if you are registered), whether the consignor is a private individual or a business.
Paragraph 22.6 covers the shop that issues invoices in its own name: "for VAT purposes only, you must treat the transaction as though it was both a supply to you and a supply by you". That is Model B. It does not change who owns the bag; it changes how the VAT return is built. Notice 700 paragraph 24.1 adds that UK undisclosed agents in domestic supplies may keep invoicing their principal for a separate supply of services, so the choice is genuinely yours - but it must be consistent and documented.
Most consignment shops end up in Model B without intending to, because the till receipt and the online order confirmation carry the shop's name, not the consignor's. If that is you, you need the margin scheme.
How does the margin scheme work on consigned goods?
VAT Notice 718, section 17 is written for this. Paragraph 17.1 says dealers who sell goods "for, or on behalf of other dealers or private sellers" and "retain a percentage of the selling price" or "make a separate charge to the owner" are agents, and both parties follow section 17. Paragraph 17.3: an agent acting in their own name "can use a Margin Scheme when you sell eligible goods", and "your margin will be equal to the charges you make for your services as an agent".
There are two ways to account for the charges, and they give the same VAT:
Separate invoice to the consignor (17.4). You issue an invoice for your commission with VAT on it, and a separate margin-scheme invoice to the buyer for the goods. Your purchase price is "the total price you receive for the goods, not including any charges made to the buyer"; your selling price is the total received including any buyer's premium; the margin is the difference. If you charge the consignor 30% on a £1,000 sale and nothing to the buyer, the goods margin is nil and the VAT is all on the commission invoice.
Commission deducted from proceeds (17.5). Your purchase price is "the total sum you receive for the transaction less your charges to the seller"; your selling price is the total received; the margin is your charges. On the £1,000 bag: purchase £700, sale £1,000, margin £300, VAT £50. Notice 718 says this "mirrors the method used by auctioneers" under Notice 718/2.
Either way, 17.4.1 and 17.5.1 spell out the prize: you "will not pay any VAT on the goods" themselves. Without the scheme you pay VAT on the goods and on the charges.
Conditions that bite in resale:
- Eligible goods only. Second-hand goods, works of art, antiques and collectors' items. Paragraph 2.8: precious metals, investment gold and precious stones are excluded. A consigned diamond ring sold above scrap value is second-hand jewellery and eligible; a consigned bar or loose stone is not.
- Stock book and invoices. Sections 4 and 5 of the notice have the force of law. You need the stock book fields for every consigned item you sell under the scheme, and a margin-scheme sales invoice that shows no separate VAT.
- The purchase invoice. Paragraph 17.7: if the consignor is VAT-registered and using the margin scheme themselves, they must give you an invoice with the paragraph 5.3 details; "if you sell goods on behalf of someone who is not registered for VAT, you must make out the invoice yourself". For a private consignor, your own consignment agreement plus the payout statement is that document - make sure it carries their name and address, the date, a description and the price.
- Zero-rated goods (17.6). If you deduct commission from proceeds, your margin follows the liability of the goods; if you invoice separately, your commission is standard-rated regardless. Rarely relevant to bags and watches; relevant to antique books.
How do you invoice the consignor and pay them?
Monthly, with a statement per consignor that lists each item sold, the sale date, the gross price, your commission, VAT on the commission where you charge it separately, any agreed deductions (authentication, cleaning, postage) and the net due. Pay by bank transfer against that statement and keep it with the VAT records - it is your purchase evidence under Model B and your commission invoice under Model A.
Three mechanics worth fixing early:
- Returns. Pay after the consumer returns window has closed on online sales, and say so in the agreement.
- Deductions are supplies. If you charge the consignor £20 for authentication, that is a standard-rated service from you to them, with VAT, whichever model you use.
- Unsold returns. Returning an item is not a transaction; it comes off the memorandum list and the stock book shows it was never sold.
Our start-up guide covers the agreement clauses.
Which tools handle consignment accounting?
| Tool | What it does for consignment | UK VAT position | Price (August 2026) |
|---|---|---|---|
| Spreadsheet | Memorandum stock list, payout statements, a margin-scheme stock book if you build the columns | Whatever you build | Free |
| My Reseller Genie | US reseller bookkeeping with "Consignment Tracking" on every plan; integrations for eBay, Poshmark, Mercari, Whatnot, Etsy | No UK VAT or margin scheme support; US sales-tax oriented | $11.99, $16.99, $22.99 a month |
| Xero | General ledger, VAT return, consignor payables; tracking categories can tag consignors | Standard UK VAT returns, no native margin scheme calculation - the VAT on margin is posted as an adjustment | £16 (Ignite), £37 (Grow), £50 (Comprehensive), £65 (Ultimate) a month ex VAT |
| Sage Accounting | As Xero | As Xero | £20 (Start), £43 (Standard), £59 (Plus) a month ex VAT after promotion |
| Consignment software | Item-level record, split, payout statement, sometimes the stock book; exports to the ledger | Varies; most US products do not address UK VAT | See best consignment software UK |
The honest pattern: the ledger (Xero or Sage) is where the VAT return comes from, and the consignment record (spreadsheet or software) is where the per-item evidence lives. Neither Xero nor Sage will build the margin-scheme stock book for you. What you are choosing is how the per-item record gets into the ledger - by hand, by CSV, or by integration.
What we could not verify
- That Xero and Sage have no native margin-scheme module in 2026. Neither pricing page mentions one and neither has historically had one; we did not find an announcement of a change. Check before relying on it.
- My Reseller Genie's handling of non-US sellers. Its pricing lists US marketplaces only; it may work for a UK seller on eBay but it does not claim UK VAT support.
- HMRC's view of the "payout statement as purchase invoice" approach for private consignors. Paragraph 17.7 says you make the invoice out yourself; we have described what it must contain, but confirm the layout with your accountant.
- The FRS 102 revenue change. The periodic review amendments to Section 23 apply from periods beginning on or after 1 January 2026; their effect on a small consignment shop should be confirmed with whoever prepares your accounts.
Sources
- VAT guide (VAT Notice 700) - sections 22 to 24, agents - GOV.UK
- The Margin and Global Accounting Scheme (VAT Notice 718) - section 17, agents; section 2, conditions; sections 4 and 5, records - GOV.UK
- VAT registration - when to register - GOV.UK, £90,000 threshold
- Xero UK pricing plans
- Sage Accounting pricing
- My Reseller Genie pricing
This is general information, not tax or accounting advice. The agent/principal distinction and the margin scheme turn on the wording of your agreement and invoices and on the facts of each sale, and getting them wrong is assessed on the full selling price. Confirm your treatment with your accountant or a VAT specialist before your first VAT return, and read the notices directly - HMRC updates them in place.
Milleso holds consignment and memo stock separately from owned stock, records the split and the VAT treatment against each piece at intake, produces the monthly consignor payout statement, and exports the ledger entries to Xero or Sage.