If your accounting year ends with half-finished rings on the bench and a few bespoke commissions waiting on a stone, you've got a valuation job to do. Those part-made pieces are not yet sales, but they are not nothing either. They sit on your books as work in progress, and how you value them changes your taxable profit.
Get it wrong and you either overstate profit and pay tax you didn't owe, or understate it and store up a problem for HMRC to find later.
This guide is for jewellers, goldsmiths and bespoke makers who close their own books or want to sanity-check what their accountant has done. We'll cover what counts as cost, the rule that caps the figure, the precious-metal price wrinkle, and a worked example you can copy.
What is work in progress for a jeweller?
Work in progress is the value of goods you've started but not finished by your year-end date. For a jeweller that's the part-made commission, the casting back from the casters, the ring waiting on a setting. You value it at the lower of cost and net realisable value, and that figure carries into your accounts as a closing stock asset.
Finished pieces you haven't sold yet are closing stock too. The valuation principle is the same. The difference is simply how far through the making process each item is.
This matters because closing stock and work in progress reduce your cost of sales. Money you spent on materials and labour for an unfinished piece is not an expense of this year's profit. It's an asset you carry forward, and it becomes a cost only when the piece sells. That's the matching idea behind the rule HMRC applies to traders.
Why does it change my tax bill?
Your trading profit is broadly sales, less purchases, plus closing stock and work in progress, less opening stock and work in progress. A higher closing valuation lifts this year's profit. A lower one reduces it. So the number you put on that half-made bracelet feeds straight into the profit your tax is charged on, whether you trade as a sole trader, a partnership or a limited company.
How do you value work in progress and bespoke commissions?
You value each unfinished piece at the lower of cost and net realisable value (NRV). Cost is everything you've spent bringing the item to its current state. NRV is what you expect to sell it for, less the costs still to come. You take whichever is lower, item by item.
HMRC accepts the accounting standard here, valuing stock and work in progress at the lower of cost and net realisable value, and defines cost as all costs of purchase, costs of conversion and other costs incurred in bringing the item to its present location and condition (HMRC Business Income Manual, BIM33135).
In plain terms, "cost of conversion" is the labour and the workshop overhead that turns raw gold and a loose stone into a part-made ring.
What goes into cost?
For a bespoke piece part-way through, cost usually includes:
- Materials at what you paid: the metal, the stones, findings, solder and other consumables that have gone into the piece.
- Direct labour: the bench time spent on that specific piece, costed at the maker's hourly rate.
- A fair share of production overhead: the workshop costs that support making, allocated on a sensible basis (often labour hours). HMRC allows a reasonable proportion of indirect production costs, and bases fixed overhead allocation on your normal production capacity, not an unusually quiet period.
You do not include selling and distribution costs, general administration, or your profit margin. Profit is recognised when the piece sells, not while it sits unfinished. Building in margin would inflate the asset and overstate this year's profit.
What is net realisable value, and when does it bite?
NRV is the price you realistically expect to get, less the costs of completing the piece and selling it. For most healthy bespoke commissions NRV sits well above cost, so you value at cost. NRV only "bites" and becomes the figure you use when a piece is worth less than you've put into it.
That happens more than you'd think in jewellery. A commission gets cancelled and you're left with a half-set piece nobody else wants in that form. A repair goes wrong. A design dates. Where the realistic recoverable amount has dropped below cost, you write the valuation down to NRV. You never write it up above cost to reflect a hoped-for gain.
What about the gold and precious-metal price?
This is the wrinkle that catches jewellers out. You value the metal already committed to a piece at what you paid for it, your cost, not at today's spot price. If gold has risen since you bought the bar, you do not revalue the work in progress upward to capture that. The lower of cost and NRV rule caps the metal element at cost.
If the metal price has fallen so far that the finished piece's NRV drops below what you've spent, that's when the price move feeds in, by pulling NRV below cost and forcing a write-down. The rule is asymmetric on purpose: it recognises losses early and gains only on sale.
If you genuinely hold gold as an investment asset rather than as making stock, different rules apply. Investment gold has its own VAT exemption and a special accounting scheme, and we cover where that line sits below.
Illustrative example: a part-finished engagement ring
Illustrative example. Aanya runs a bespoke workshop as a sole trader, with a year-end of 31 March 2026. On that date she has one commission half made: an 18ct gold solitaire engagement ring, agreed with the client at £6,500. Here's how she builds the work in progress figure.
| Cost element | Basis | Amount |
|---|---|---|
| 18ct gold (22g committed) | 22g at £48/g paid | £1,056 |
| Diamond (bought in) | Actual cost | £1,800 |
| Direct bench labour | 14 hours at £22/hr | £308 |
| Production overhead | 14 hours at £6/hr | £84 |
| Cost of work in progress | £3,248 |
Now the NRV check. The agreed price is £6,500. Aanya still has to finish setting and polishing, with about £900 of further cost to come, and minimal selling cost because it's a confirmed commission. Expected NRV is roughly £6,500 less £900, around £5,600, comfortably above the £3,248 cost.
So she values the work in progress at the lower figure, cost of £3,248. The gold she bought earlier in the year has since risen in price, but she ignores that gain. It is not realised until the ring sells.
If the client had instead pulled out and the half-set ring could only be broken for scrap at, say, £2,400, NRV would fall below cost. Aanya would then write the valuation down to £2,400 and take the £848 hit in the year the loss became apparent.
Does the VAT margin scheme apply to my commissions or stock?
For a piece you make from new materials, no. You make a new article and charge VAT in the normal way on the full selling price if you're VAT registered, with the standard rate currently 20% (gov.uk VAT rates). The margin scheme is for qualifying second-hand goods, and it changes how VAT is calculated, not how you value work in progress for profit.
It's worth knowing where the scheme stops, because the exclusions catch jewellers out. The VAT margin scheme lets a dealer pay VAT only on the margin between buying and selling price for eligible second-hand goods. Finished second-hand jewellery you buy in to resell does qualify as eligible second-hand goods, so you can account for VAT on just your margin. What is specifically excluded is investment gold and precious metals and stones supplied in their own right: gold bullion and investment-grade gold, scrap metal bought for its material value, and loose or unset gemstones (HMRC VAT Margin Schemes manual, VATMARG02100; VAT margin schemes overview). The distinction is whether you are reselling a finished article or trading the metal and stones as a commodity.
The practical point: the margin scheme can genuinely help a jeweller who resells second-hand pieces, but it has no effect on the work in progress valuation we're discussing. They are separate questions.
Where does investment gold fit in?
Investment gold has its own treatment. Supplies of investment gold are exempt from VAT, and there's a special accounting scheme (a reverse charge) on standard-rated gold supplies between taxable persons, designed to stop missing-trader fraud, set out in VAT Notice 701/21. If you buy investment-grade gold purely to hold or trade as an investment, it is not making stock and the work in progress rules in this article do not apply to it. Most metal in a jeweller's workshop is making stock, not investment gold, so for the bench it's the cost-and-NRV rule that governs.
Do I need to register for money laundering supervision?
Possibly, and it's worth checking before year-end while you're reviewing the business. If you accept or make cash payments of 10,000 euros or more (or the equivalent in any currency) for goods, you're a high value dealer and must register with HMRC for money laundering supervision before taking such a payment (gov.uk high value dealer registration).
Cash means notes and coins. If you only ever take large payments by card, bank transfer or cheque, you don't need to register on this basis. The threshold also catches a single sale split into smaller cash amounts to dodge the limit. This is separate from valuation, but it's a common gap we find when reviewing a jewellery client's year-end, so it's worth the two-minute check.
What about tools and equipment, not stock?
Don't confuse making stock with your workshop equipment. A new laser welder, a rolling mill or a casting machine is plant and machinery, not work in progress. Those go through capital allowances, and most qualify for the Annual Investment Allowance, which lets you deduct the full cost of qualifying plant and machinery up to £1,000,000 a year against profit (gov.uk Annual Investment Allowance).
Materials and labour sitting in a half-made ring are stock and work in progress, valued at cost or NRV. The mill that helped roll the metal is a capital asset, claimed separately. Keeping the two apart is one of the most common bench-level bookkeeping fixes we make for jewellers.
If you want this handled properly alongside your accounts, our accountants for jewellers deal with exactly this every year-end.
Key takeaways
- Value unfinished commissions at the lower of cost and net realisable value, item by item.
- Cost is materials, direct bench labour and a fair share of production overhead. Never your profit margin.
- Value committed metal at what you paid, not today's spot price. Recognise gains only on sale, losses as soon as NRV falls below cost.
- Finished second-hand jewellery you buy in to resell can qualify for the VAT margin scheme; investment gold, bullion, scrap metal and loose stones are excluded. Either way, the scheme has no bearing on the valuation itself.
- Check whether you're a high value dealer (10,000 euro cash threshold) and keep equipment in capital allowances, not stock.
Want your work in progress and bespoke commissions valued correctly at year-end? Talk to a Zmartly accountant for jewellers and get your stock figure right the first time.
Frequently asked questions
Do I value work in progress at cost or selling price?
At the lower of cost and net realisable value. Cost is what you've spent so far on materials, direct labour and a fair share of production overhead. Net realisable value is the expected selling price less the costs still to come. You use whichever is lower, and you never include profit in the valuation.
Should I revalue gold work in progress when the gold price rises?
No. You value the metal already in a piece at what you paid for it. A rise in the gold price is an unrealised gain you recognise only when the finished piece sells. If the price falls far enough that the item's net realisable value drops below cost, you write the valuation down to that lower figure.
Can I use the VAT margin scheme for second-hand jewellery I buy in?
Usually yes for finished pieces. Second-hand jewellery you buy in to resell is eligible second-hand goods, so you can account for VAT on your margin. What's excluded is investment gold, bullion, scrap metal bought for its material value and loose or unset stones. The margin scheme also has no effect on how you value work in progress for profit.
Is a half-finished commission a sale at my year-end?
No. An unfinished commission is work in progress, an asset on your books, not a sale. You recognise the sale and its profit only when the piece is finished and the risks and rewards pass to the client. Until then it sits in closing stock and work in progress at cost or net realisable value.
Does the work in progress rule apply to investment gold I hold?
No. Investment gold held as an investment is not making stock and follows its own VAT and accounting treatment under VAT Notice 701/21. The lower of cost and net realisable value rule in this article applies to the materials and labour in the pieces you're making, which is what sits on most jewellers' benches.
