If you buy and sell pre-owned jewellery, charging VAT on the full ticket price can wipe out your margin. Most of your stock comes from members of the public who never charged you VAT, so there is nothing to reclaim and a 20% charge on the whole sale price hurts.
The VAT margin scheme fixes that. It lets you account for VAT on your profit margin only, not the full selling price. On a second-hand engagement ring, that can be the difference between a workable markup and a loss.
This guide walks through who can use it, the goods that are blocked (gold and loose stones have real traps here), a full worked example with current figures, the stock-book records HMRC expects, and how it lands on your VAT return. It is written for UK jewellers and second-hand dealers, and the figures relate to the 2025/26 tax year.
What is the VAT margin scheme for second-hand jewellery?
The margin scheme lets you pay VAT only on the difference between what you paid for an item and what you sold it for, instead of on the full selling price. You pay VAT at 16.67%, which is one-sixth, on that margin, and if you sell a piece for less than you paid you have no VAT to account for on it.
It is optional. You can start using it at any time by keeping the right records, and you do not register separately to use it. It exists precisely for goods like second-hand jewellery, where you usually buy from private individuals or other dealers who could not charge you VAT, so you have no input VAT to recover.
The scheme covers second-hand goods, works of art, antiques and collectors' items. A pre-owned necklace or watch bought in to resell is second-hand goods, so it sits squarely within the scheme.
Which jewellery can you put through the margin scheme?
You can use the margin scheme on eligible second-hand jewellery, meaning a piece bought in a state suitable for further use as it is, or after repair, where you were not charged VAT when you bought it. Typical qualifying stock includes:
- A pre-owned ring, bracelet, necklace or watch bought from a member of the public.
- A second-hand piece bought from a non-VAT-registered dealer.
- A second-hand piece bought from another VAT-registered dealer who themselves sold it to you under the margin scheme (their margin-scheme invoice is your evidence).
The common thread is simple. No VAT was charged to you on the purchase, so there was nothing to reclaim, and the scheme then taxes only your margin when you sell.
If you trade in pre-owned pieces day to day, the mechanics of pricing, recording and VAT all hang together. Our guidance for jewellers covers how this fits alongside your wider bookkeeping.
When can you not use the margin scheme?
This is where jewellers get caught, because the exclusions bite on exactly the materials you handle. You cannot use a margin scheme for:
- Any item you bought and were charged VAT on. If there is recoverable VAT on the purchase, it goes through your normal VAT accounting, not the margin scheme.
- Precious metals.
- Investment gold.
- Precious stones.
So a loose diamond or a parcel of unset precious stones cannot go through the margin scheme. Neither can gold sold as a precious metal, nor investment gold.
What counts as investment gold?
Investment gold has a precise HMRC definition, and it matters because investment gold is exempt from VAT (subject to an option to tax), so it never belongs in the margin scheme. Investment gold means 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, plus certain gold coins. A gold coin counts if it was minted after 1800, is of a purity not less than 900 thousandths, is or has been legal tender in its country of origin, and is normally sold at a price not more than 180% of the open market value of the gold it contains.
A second-hand gold ring or chain that you buy in to resell as a piece of jewellery is not investment gold and is not, by itself, a sale of the precious metal. It is second-hand goods, and it can go through the margin scheme. The exclusion is about selling gold as bullion or as the metal, not about a finished piece of jewellery that happens to contain gold.
In practice, the mistake we see most often is a jeweller treating a scrap-gold or bullion transaction as if it were ordinary second-hand stock. Those are different supplies with different VAT treatment, so keep them apart in your records.
How do you calculate the VAT on the margin?
The standard VAT rate is 20%, which gives a VAT fraction of one-sixth on the margin. The method is the same for every piece:
- Take the price you sold the item for.
- Take away the price you paid for it. That is your gross margin.
- Multiply the gross margin by 1, then divide by 6. That is the VAT due.
You cannot add costs such as repairs, cleaning, restoration, valuation fees or overheads to the purchase price. The purchase price is the total price you paid for the item, and nothing more. If you sell a piece for less than you paid, the margin is nil or negative and there is no VAT to account for, but you also cannot use that loss to reduce the VAT on other sales under the standard margin scheme.
A full worked example
Illustrative example. Aria runs a VAT-registered jewellery shop. She buys a pre-owned 18-carat gold ring from a member of the public for £600. No VAT is charged to her, so there is nothing to reclaim. She has it professionally cleaned for £24 including VAT, then sells it across the counter for £960.
Here is how the margin scheme applies.
| Step | Amount |
|---|---|
| Selling price | £960.00 |
| Less purchase price | £600.00 |
| Gross margin | £360.00 |
| VAT due (margin × 1/6) | £60.00 |
| Margin net of VAT | £300.00 |
The VAT she owes on this sale is £360 ÷ 6 = £60.
Now compare that with charging VAT the normal way on the full £960. The VAT in a £960 gross sale would be £960 ÷ 6 = £160. The margin scheme saves Aria £100 of VAT on this single ring, because she is taxed on her £360 margin rather than the whole price.
A few points the example shows in practice:
- The £24 cleaning cost does not reduce the margin. The purchase price stays at £600. Aria recovers VAT on the cleaning through her normal input VAT, because that is a separate VAT-charged supply to her business, but it never touches the margin calculation.
- Aria's sales invoice must not show VAT separately. It shows the total price of £960 only.
- If she had instead sold the ring for £560, below the £600 she paid, the margin would be negative, so there would be no VAT to account for on that sale.
What records and invoices do you need to keep?
The scheme stands or falls on your records. If HMRC cannot check the margins you have declared from your records, VAT becomes due on the full selling price of the goods, even if they were otherwise eligible. So the paperwork is not optional housekeeping, it is the price of using the scheme.
The stock book
You must keep a stock book that records, for every item, both the buying and selling side. HMRC expects these details:
| Purchase details | Sale details |
|---|---|
| Stock number in numerical sequence | Date of sale |
| Date of purchase | Sales invoice number |
| Purchase invoice number (unless you made it out yourself) | Name of buyer |
| Purchase price | Selling price, or method of disposal |
| Name of seller | Margin on sale (selling price less purchase price) |
| Description of the item | VAT due (margin × 1/6) |
Purchase and sales invoices
For each purchase you need an invoice showing the seller's name and address, your name and address, the invoice number (unless you made it out yourself), the date, a description of the item, the total price with no other costs added, and a means of cross-referencing to the stock book. Where you buy from a private individual, you make out the purchase invoice yourself.
For each sale your invoice must show your name, address and VAT registration number, the buyer's name and address, the invoice number, the date, a description of the item, a cross-reference to the stock book, and the total price. You must not show VAT separately on a margin-scheme sales invoice.
Keep these records for at least 6 years, as for VAT records generally.
How does it go on your VAT return?
The margin scheme changes what you put in the VAT boxes, so get this right. The VAT on the margin goes in your output VAT, and the value figures use the margin, not the full selling price.
- Box 1 (VAT due on sales). Include the output VAT due on the margins of your margin-scheme sales for the period.
- Box 6 (total value of sales, excluding VAT). Include the full selling price of your margin-scheme sales, less the VAT due on the margin.
- Box 7 (total value of purchases, excluding VAT). Include the full purchase price of the margin-scheme goods you bought in the period.
Using Aria's ring: Box 1 includes the £60 VAT on the margin, Box 6 includes £900 (the £960 selling price less the £60 margin VAT), and Box 7 includes the £600 purchase price. Always check HMRC's current VAT return guidance when you file, because box treatment is detailed and worth confirming.
If you would rather not hand-calculate every box, a Zmartly accountant who works with jewellers can set your bookkeeping up so the margin scheme flows straight onto the return, and our bookkeeping services keep the stock book and invoices in the shape HMRC expects.
What about the global accounting scheme for low-value pieces?
If you deal in volume, low-value second-hand jewellery, the standard scheme's item-by-item stock book can be painful. The global accounting scheme is a simplified version that lets you account for VAT on the total margin between your eligible purchases and sales in a period, rather than tracking each piece.
The key limit for jewellers is the value cap. You cannot include an individual item with a purchase value of over £500 in global accounting. A higher-value piece, such as a £600 ring, has to go through the standard margin scheme instead.
A useful feature is the treatment of a poor period. If your total eligible purchases exceed your total eligible sales, you get a negative margin and no VAT is due, and you carry that negative margin forward to the next period.
Illustrative example. Over a VAT quarter, a dealer buys £4,200 of eligible low-value second-hand jewellery (each piece under £500) and sells £6,300 of it under global accounting. The gross margin is £6,300 − £4,200 = £2,100, and the VAT due is £2,100 ÷ 6 = £350 for the period. The same exclusions apply as for the standard scheme, so precious metals, investment gold and precious stones stay out.
Do you also need money laundering supervision?
Quite possibly, and it is separate from VAT. If your business accepts or makes high-value cash payments of €10,000 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. Cash means notes, coins and travellers' cheques.
HMRC treats multiple cash payments against a single invoice that together exceed the threshold as linked transactions, however long they take. You do not need to register if you are only ever paid large amounts by card or cheque, or if you do not take high-value cash. Jewellery is a classic high value dealer sector, so check your position before you accept a large cash sale.
Frequently asked questions
Can I use the VAT margin scheme on a second-hand gold ring?
Yes. A finished, pre-owned gold ring bought in to resell as jewellery is second-hand goods, and if you were not charged VAT when you bought it, it can go through the margin scheme. The exclusions for precious metals and investment gold are about selling gold as bullion or as the metal, not about a finished piece of jewellery that contains gold.
Can I put loose diamonds or precious stones through the margin scheme?
No. Precious stones are specifically excluded from the margin scheme, so a loose diamond or a parcel of unset stones cannot use it. Once a stone is set into a finished piece of second-hand jewellery, you are dealing with second-hand goods, which is a different position.
Can I add repair or cleaning costs to the purchase price?
No. The purchase price for margin-scheme purposes is the total price you paid for the item and nothing else. You cannot add repairs, cleaning, restoration, valuation or overhead costs to reduce the margin. You may recover VAT on those costs through your normal input VAT if they were VAT-charged supplies to your business.
How much VAT do I pay under the margin scheme?
You pay VAT at one-sixth, which is 16.67%, of your margin. You take the selling price, subtract the purchase price to get the gross margin, then divide that margin by 6. If you sell at or below the price you paid, there is no VAT to account for on that sale.
What happens if my margin-scheme records are incomplete?
If HMRC cannot check your declared margins from your records, VAT becomes due on the full selling price of the goods, even if they were otherwise eligible. That is why the stock book, purchase invoices and sales invoices matter, and why records must be kept for at least 6 years.
Do I show VAT separately on a margin-scheme sales invoice?
No. A margin-scheme sales invoice shows the total price only and must not show VAT separately. Your invoice should still carry your name, address and VAT number, the buyer's details, the invoice number, the date, a description of the item and a cross-reference to your stock book.
Want help getting the margin scheme right?
If you sell pre-owned jewellery and want the margin scheme set up properly, with a compliant stock book and the right VAT-return treatment, talk to us. Book a free 20-minute call with a Zmartly accountant who works with jewellers, and we will make sure your records, invoices and returns hold up.
