If you buy scrap gold from another VAT-registered business, you probably should not be paying VAT to your supplier at all. Instead, you account for it yourself. That is the Special Accounting Scheme for gold, better known as the reverse charge, and getting it wrong is one of the most common VAT errors we see in the trade.
This guide explains when the scheme applies, when it does not, and exactly which boxes go on your VAT return. We have written it for jewellers, bullion dealers and anyone in the trade who buys, refines or sells gold.
Every rule below is taken from HMRC's own guidance. We link to the source pages at the end so you can check them yourself.
What is the scrap gold VAT reverse charge?
The Special Accounting Scheme for gold shifts the job of accounting for VAT from the seller to the buyer. The seller does not charge VAT on the invoice. Instead, the buyer accounts for the output tax to HMRC and, where they are entitled, reclaims the same amount as input tax on the same return.
In practice the VAT often nets to nil, but it is not optional. Where the scheme applies, you must use it.
It exists to stop "missing trader" fraud in gold, where a seller charges VAT, pockets it and disappears before paying HMRC. By moving the charge to the buyer, HMRC removes the cash from the supply chain.
When does the Special Accounting Scheme apply?
The scheme is compulsory when all of these conditions are met, per VAT Notice 701/21:
- The seller and the buyer are both VAT-registered, or are liable to be registered as a result of the transaction.
- The seller is making the supply by way of business.
- The buyer is making the purchase in connection with a business they carry on.
If any one of those is missing, for example you buy from a member of the public walking in off the street, the scheme does not apply and you handle the VAT under the normal rules or the margin scheme instead.
Answer in one line: When one VAT-registered business buys scrap gold from another for business purposes, the seller charges no VAT and the buyer accounts for it under the reverse charge, recovering it as input tax on the same return where eligible.
Does scrap gold count, and what is excluded?
Yes. HMRC's guidance is explicit that the scheme covers supplies of scrap, including "live scrap", which is its phrase for scrapped jewellery, broken jewellery, watch cases, cigarette cases and similar items, plus sweepings.
It also covers fine gold, gold grain of any purity, gold coins (other than coins traded under the second-hand margin scheme), investment gold where you have opted to tax it, and goods containing gold where the price paid does not exceed the open market value of the gold content by more than a negligible amount. That last point is the key one for scrap: you are buying the metal, not a finished product.
Some things are deliberately left out. The following are excluded from the scheme:
- Part-manufactured or finished jewellery
- Gold compounds and semi-manufactured carated products (except gold grain)
- Dental gold, gold targets and gold slugs
So the line is essentially this. Buy gold for its metal content and the reverse charge bites. Buy a finished item to resell as jewellery and it does not.
How do you fill in your VAT return?
This is where the scheme catches people out, because the buyer makes entries in more boxes than you might expect. Here is what each party does, taken straight from Notice 701/21.
| VAT return box | Seller of the gold | Buyer of the gold |
|---|---|---|
| Box 1 (VAT due on sales/outputs) | Do not include the scheme VAT here | Include the VAT due on the gold you bought |
| Box 4 (VAT reclaimed on purchases) | No entry for this supply | Include the same VAT, where you can recover it |
| Box 6 (value of sales/outputs) | Enter the VAT-exclusive value of the sale | Enter the value of the gold (it is deemed a supply by you too) |
| Box 7 (value of purchases) | No entry for this supply | Enter the value of the gold you bought |
The detail that surprises people is Box 6 for the buyer. HMRC treats the buyer as if they had also made a supply of the gold, so the value appears in the buyer's outputs as well as their inputs. It does not change the VAT you pay, but it does affect your reported turnover figures, so get it right.
You must account for the output tax in the same period in which you buy the gold, or in which it is made available for you to remove. If you do not, HMRC can assess you for the VAT.
Worked example: buying a parcel of scrap gold
Illustrative example. Aurora Jewellers Ltd is VAT-registered. It buys a parcel of broken and scrapped 18-carat jewellery from Meridian Refiners Ltd, also VAT-registered, for resale to a refiner. The agreed price is the gold fix value of £4,000, with no VAT added to the invoice.
The standard VAT rate is 20% for 2025/26.
Here is how each side reports it.
| Step | Figure |
|---|---|
| Agreed price (gold content, VAT-exclusive) | £4,000 |
| VAT at 20% | £800 |
| Aurora's Box 1 (output tax it accounts for) | £800 |
| Aurora's Box 4 (input tax it reclaims, fully taxable use) | £800 |
| Aurora's net VAT on this purchase | £0 |
| Aurora's Box 6 and Box 7 (value) | £4,000 each |
| Meridian's Box 1 | £0 |
| Meridian's Box 6 (VAT-exclusive value of sale) | £4,000 |
The arithmetic is straightforward: £4,000 x 20% = £800. Because Aurora uses the gold wholly for taxable business, the £800 it declares in Box 1 is matched by the £800 it recovers in Box 4, so its cash position is nil. The point of the exercise is compliance, not extra tax.
If Aurora could only partly recover its input tax, say because it also makes exempt supplies, the Box 4 figure would be restricted under the normal partial exemption rules and there would be a real cost. Speak to us before you assume it nets to zero.
What goes on the invoice?
The seller still issues a VAT invoice with all the usual details, but with some scheme-specific additions required by Notice 701/21:
- A statement to the effect that the output tax is payable to HMRC by the buyer, using wording such as "£...... output tax on this supply of gold to be accounted for to HMRC by the buyer".
- The amount of output tax shown clearly, but not added into the total VAT charged on the invoice.
- The time of supply, normally the date the gold is delivered or made available for removal.
- The weight, the purity, the number of items where possible, and the fix price of the gold on the day of delivery.
Both buyer and seller must keep the invoice and supporting records for at least six years from the date of the transaction. If you buy the gold, keep the purchase invoice you receive.
How is this different from the VAT margin scheme?
This is the question that causes the most confusion, because both can involve gold jewellery.
The VAT margin scheme lets you pay VAT only on your profit margin when you sell eligible second-hand goods, at a rate of 16.67% (one-sixth) of the margin. It is useful when you buy a second-hand ring or watch from someone who could not charge you VAT, then sell it on as jewellery.
But the margin scheme specifically cannot be used for precious metals, investment gold or precious stones. So the test is what you are actually trading:
| Scenario | Treatment |
|---|---|
| You buy a finished second-hand ring to resell as a ring | VAT margin scheme may apply (16.67% on the margin) |
| You buy broken/scrap jewellery for its gold content from a VAT-registered business | Special Accounting Scheme (reverse charge) |
| You buy scrap gold from a private individual | Outside the reverse charge; consider the margin scheme on later resale of any finished items, but not on the metal itself |
In short, sell the item and you may be in the margin scheme; sell the metal and you are in the reverse charge. If you run a buy-back counter, you will likely touch both, sometimes on the same day. Our team that works with jewellers can help you set up records that keep the two streams cleanly separated.
Where does investment gold fit in?
Investment gold is a separate world again, and it is generally exempt from VAT.
HMRC defines investment gold to include gold of a purity not less than 995 thousandths in the form of a bar or wafer of a weight accepted by the bullion markets, and certain gold coins (broadly, post-1800 coins of at least 900 thousandths purity that are or have been legal tender, sold at no more than 180% of their open market gold value). Specified investment gold coins are listed separately in VAT Notice 701/21A.
Because investment gold is normally exempt, you do not charge VAT on it. The Special Accounting Scheme only comes into play for investment gold if the supplier has opted to tax it, which some bullion market participants do. Scrap gold is not investment gold, so do not conflate the two.
Do the money laundering rules apply when you buy scrap gold?
Very possibly, and this trips up jewellers who focus only on the VAT.
If your business accepts or makes cash payments of 10,000 euros or more (or the equivalent in any currency) in exchange for goods, you are a high value dealer and must register for money laundering supervision with HMRC. The threshold applies to a single payment, to linked payments for one transaction, and to deliberately split payments designed to slip under the limit.
You must not accept or make a high value cash payment until you are registered. Buying scrap gold for cash is exactly the kind of transaction the rules target, so if cash is part of your model, check your position before the next parcel comes across the counter. HMRC can take up to 45 days to process a registration.
FAQs
Do I charge VAT when I sell scrap gold to a refiner?
No, where both of you are VAT-registered and the sale is by way of business. Under the Special Accounting Scheme you issue a VAT invoice but do not add VAT to the total. The refiner, as buyer, accounts for the VAT instead.
Does the reverse charge apply if I buy scrap gold from a member of the public?
No. The scheme only applies between VAT-registered businesses acting in the course of business. A purchase from a private individual is outside it. If you later resell finished second-hand items, the margin scheme may apply to those items, but not to the metal content.
What VAT do I actually pay under the scheme?
If you use the gold wholly for taxable business purposes, the output tax you declare in Box 1 is matched by the input tax you recover in Box 4, so the net VAT is nil. If you make exempt supplies as well, partial exemption may restrict your recovery and leave a real cost.
Is scrap gold the same as investment gold for VAT?
No. Investment gold is usually VAT-exempt and is defined by purity and form (for example bars of at least 995 thousandths). Scrap gold is bought for its metal content and falls under the Special Accounting Scheme reverse charge when traded between VAT-registered businesses.
How long do I need to keep the records?
At least six years from the date of the transaction. If you are the buyer, keep the purchase invoice you receive, along with details of weight, purity and the fix price used.
