Top 5 Accounting Mistakes Small Resale Businesses Make
We’ve seen it happen too many times with businesses selling high-value stock, moving products quickly, and still struggling with VAT returns, margin records, or unexplained losses.
Many resale businesses don’t fall apart because of one big mistake, but with small, avoidable accounting habits. Missed records here, misreported sales there that slowly eat into profits or trigger issues with HMRC.
If you deal with second-hand goods, we’re breaking down five of the most common accounting mistakes resale businesses make and how to fix (or avoid) them for good in this blog post.
Top 5 Accounting Mistakes
Mixing up margin and standard VAT rules
One of the most common and costly mistakes resale businesses make is not understanding when to use the VAT Margin Scheme versus standard VAT accounting.
These two systems are very different, and applying the wrong one can result in incorrect VAT returns, underpayment, or even penalties from HMRC.
If you run a used car dealership. Some of your vehicles were bought from private individuals (qualifying for the Margin Scheme), while others were purchased from VAT-registered businesses (standard VAT applies). If you treat all sales the same and apply the wrong VAT method, your returns will be inaccurate, and that’s exactly the kind of error HMRC looks for.
Standard VAT: You charge VAT on the full selling price and reclaim VAT on purchases.
Margin Scheme: You only pay VAT on the profit margin (selling price minus purchase price), and you can’t reclaim input VAT.
When you mix these up or apply VAT to a margin sale, you're likely either overpaying tax or setting yourself up for a VAT enquiry.
How to avoid it:
Keep separate records for margin goods and standard-rated goods.
Make sure your invoices clearly show whether the sale falls under the scheme.
Use accounting software that supports both VAT methods or work with an accountant who does.
Poor record-keeping for stock bought and sold
If there’s one thing HMRC cares about when it comes to resale businesses, it’s your records, especially under the VAT Margin Scheme.
Unfortunately, many small dealers don’t keep detailed logs of their purchases and sales, or they keep them in formats that fall apart when it’s time to file returns or face an inspection.
Let’s say you buy a pre-owned watch at a market, pay in cash, and forget to document the seller’s details. Months later, you sell the watch at a profit, but you’ve got no clear purchase record. That means you can’t prove your margin, and under the Margin Scheme, that invalidates your VAT calculation. Multiply that by ten or twenty items, and suddenly your whole VAT return is on shaky ground.
Resale businesses often work fast: Items come in, get cleaned up or repaired, and go out the door. But if you don’t pause to track:
What was bought
How much did you pay
Who did you buy it from
When and how it was sold
you’re not just risking your VAT, but you’re also losing grip on your profit margins.
How to avoid it:
Use a stock book or digital system that captures purchase date, price, seller details, and item description.
Record each sale with the matching stock item (especially the cost).
Store all invoices, receipts, or handwritten proof of purchase in one place, digitally or physically.
If you're under the Margin Scheme, make sure your records meet HMRC’s minimum requirements.
Not tracking Cost of Goods Sold (COGS) properly
COGS (Cost of Goods Sold) includes anything directly tied to preparing the item for sale: repairs, refurbishment, delivery, and even packaging.
If you're a jeweller polishing stock or a car dealer paying for inspections, those costs add up fast. And if they’re not tracked, your accounts will show inflated profits that aren’t there.
Here’s what happens without proper COGS tracking:
Your profit reports look better than reality, leading to overconfidence in cash flow or pricing
You underestimate how much stock is costing you overall
Your pricing strategy starts to slip, especially if you don’t know your break-even points
Cost of Goods Sold properly
How to prevent this:
For each sale, record the buying price and also any direct resale costs (repairs, upgrades, fees).
Set up categories in your bookkeeping system specifically for resale-related expenses.
Review your gross profit monthly so you can see what’s really working.
COGS matters because resale margins can be thin, and the difference between a healthy business and a struggling one often comes down to knowing what your stock actually costs to move.
Relying solely on spreadsheets or memory
Many small resale businesses start out using spreadsheets and that’s totally fine in the beginning. But as stock grows, VAT gets more technical, and your business gets busier, those simple sheets can quietly become risky.
And for those relying on memory or handwritten notes, the risk is even higher. One forgotten sale or mispriced stock item, and your numbers no longer reflect your reality.
Spreadsheets:
Don’t give reminders for due dates or missing data
Can’t generate VAT returns that align with HMRC rules
Don’t scale well when you’ve got dozens (or hundreds) of items moving each month
Relying on memory or rough notes might feel quicker, but it leaves your business vulnerable, especially if you get too busy, go on holiday, or need to hand things over to someone else.
How to avoid it:
Invest in simple accounting software that supports inventory and VAT Margin Scheme rules
Set up backup systems (cloud storage, auto-save) to avoid data loss
Don’t wait for things to “get messy” before upgrading, prevention is easier than clean-up
Leaving year-end accounting to the last minute
For many resale business owners, year-end feels like something you’ll “sort out later.” But when that “later” turns into a last-minute scramble, you’re more likely to miss deductions, misreport VAT, or submit rushed (and risky) returns..
And if you’re working under the VAT Margin Scheme, the stakes are even higher. Late or incorrect VAT returns can trigger penalties, interest charges, or unwanted attention from HMRC.
Examples of what gets lost in a last-minute rush:
Deductions for allowable expenses
Accurate stock valuations
Clean sales and purchase records
Strategic tax planning (e.g. choosing when to reinvest or delay sales)
To prevent this, set a monthly reminder to update your books even if it’s just for 30 minutes. Keep digital folders for receipts, invoices, and stock records as you go, and talk to your accountant before your year-end not after.
Conclusion
Mistakes in resale accounting rarely happen because you’re careless, they usually happen because you’re busy. Stock is moving, deals are closing, and the admin gets pushed aside until it can’t be ignored.
But small habits like tracking your COGS, separating VAT types correctly, and keeping reliable records can make a massive difference. They protect your profit, reduce your tax risk, and give you more control over how your business grows.
At Rhombus Accounting Firm, we work with second-hand businesses like yours every day. Whether it’s fixing past mistakes or putting systems in place that actually make sense, we’re here to help you build a more stable, profitable business without being overwhelmed.
Thanks for reading!
Meet Lewis
Lewis is a professional accountant and founder of Rhombus Accounting. He regularly shares his knowledge and best advice here on his blog and on other channels such as LinkedIn.
Book a call today to learn more about what Lewis and Rhombus Accounting can do for you.
