There is no legal requirement to produce an inventory but it is going to be essential to have a good quality inventory.
The Guild has linked up with property safe inventories and we provide a downloadable template for DIY inventories. You may want to consider a professional inventory clerk to do this work for you.
But why is an inventory so important? Quite simply, the main problem with the tenancy deposit legislation is the alternative dispute resolution provided by all the scheme administrators. Because there is no hearing, all the evidence is paper based and there is no appeal (quite how that follows Article 6 Human Rights Act, right to a fair trial I am not quite sure!).
In any event whatever our complaints, this is how it is for the moment so a good quality inventory is going to be the decider whether your deposit is returned to you or the tenant.
It may well be wise for landlords to not agree to using the alternative dispute resolution provided by the schemes. If you specifically don't agree, the tenant is forced (just as before the legislation) to use the courts instead.