VAT Margin Scheme for Jewellery and Antique Dealers: The Complete Guide

If you deal in jewellery, antiques, or other unique second-hand goods in the UK, the VAT Margin Scheme could save you thousands of pounds a year. Instead of paying VAT on the full selling price of every item, you pay VAT only on the profit margin, the difference between what you paid and what you sold it for.

For jewellery and antique dealers, this is especially significant. Most of your stock comes from private sellers, estate sales, house clearances, and auction houses, sources that typically do not charge VAT. The margin scheme exists precisely for this kind of trade, yet many dealers either do not use it, use it incorrectly, or struggle with the record-keeping requirements. GemJam can automate margin scheme calculations and keep a digital stock book of your margin scheme stock.

This guide covers everything you need to know: which purchases qualify, how to calculate the margin, what records HMRC expects, common mistakes to avoid, and how to choose between item-by-item and Global Accounting methods.

What the VAT Margin Scheme means for jewellery and antique dealers

The VAT Margin Scheme is a special method of accounting for VAT on second-hand goods, works of art, antiques and collectors’ items. Under the standard VAT rules, you would charge VAT on the full selling price and reclaim VAT on your purchases. Under the margin scheme, you pay VAT only on the margin, the difference between your purchase price and your selling price.

This matters enormously for jewellery and antique dealers because most stock is acquired from sources that do not charge VAT. When you buy a Victorian brooch from a private seller at a fair, there is no input VAT to reclaim. Without the margin scheme, you would owe HMRC VAT on the entire selling price with no corresponding input VAT credit. The margin scheme corrects this by limiting your VAT liability to the profit you actually made.

For example, if you buy an antique necklace for £800 from a private seller and sell it for £1,200:

With the margin scheme: VAT is calculated on the £400 margin = £66.67
Without the margin scheme: VAT is calculated on the full £1,200 = £200.00

That is a saving of £133.33 on a single transaction. Across a year of trading, the cumulative difference can be substantial.

The scheme is available to any VAT-registered business that buys and sells eligible goods. You do not need to apply for it; you simply start using it for qualifying items, provided you maintain the required records.

Which purchases qualify for the margin scheme

Not every item you buy can be sold under the margin scheme. Two conditions have to hold. The item must be goods the scheme covers — second-hand goods, works of art, antiques, or collectors’ items — and you must have been charged no VAT when you bought it.

Both conditions matter, and what the item is can rule it out on its own: precious metals, investment gold, and precious stones are excluded however you acquired them. The conditions and exclusions below are the ones that come up most often in the trade rather than a complete list, so check the full eligibility rules on gov.uk before you rely on them.

Where the no-VAT-charged condition is usually met

The test is the purchase invoice, not the seller’s VAT status. A VAT-registered dealer selling to you under their own margin scheme charges you no VAT, so buying from a registered business does not rule the scheme out by itself. It is a VAT invoice showing VAT charged on the goods that takes the item out of the scheme.

With that test in mind, and assuming the goods themselves are within the scheme, the sources below are where a dealer most often finds that no VAT was charged. Treat them as a shortlist of where to look rather than as the rule — in every case it is the invoice that decides, and seller type is only the usual reason the invoice comes out that way:

Private individuals, including walk-in sellers, house clearances, estate sales, car boot sales, and antiques fairs where the seller is not VAT-registered
Auction houses where the consignor (the person who put the item up for sale) is not VAT-registered. Where the auctioneer sells the lot under the margin scheme, the buyer’s premium is part of its own margin with no VAT shown separately and forms part of your purchase price; separate VAT on the goods is a signal the lot was sold outside the scheme, while separate VAT on the premium is a prompt to check the specific position (it can be standard-rated and shown separately on imported works of art, antiques and collectors’ items) — see the buyer’s premium note below
Other margin scheme dealers, who sold the item to you under their own margin scheme and so did not charge you VAT separately
Non-VAT-registered businesses, meaning small businesses below the VAT registration threshold

For jewellery and antique dealers, the vast majority of scheme stock comes from the first three categories. A typical dealer might buy an Art Deco diamond ring from a widow selling her late husband’s estate, a Georgian silver candelabrum at a provincial auction house, and a collection of vintage brooches from a retiring collector. All three are goods the scheme covers, and none would normally carry VAT on the goods.

What does not qualify

Goods the scheme does not cover. Some items are outside the scheme whatever you paid and whoever you bought them from, including precious metals, investment gold, and precious stones. Being second-hand is not enough on its own.

Purchases where VAT was charged on the goods. Even for goods the scheme covers, you cannot use the margin scheme where:

A VAT-registered wholesaler or dealer invoiced you with VAT on the goods
You bought new goods from a manufacturer or distributor
You reclaimed input VAT on the goods

If you paid VAT and reclaimed it, the item must be sold under standard VAT rules. You cannot double-benefit by reclaiming input VAT and then using the margin scheme on the sale.

Two exceptions worth knowing about. VAT having been charged is not an absolute bar in every case. HMRC’s guidance on margin schemes when you import or export sets out special rules for works of art, collectors’ items and antiques imported into Great Britain from outside the UK, and for the same goods imported into Northern Ireland from outside the EU and the UK. Separate rules cover works of art bought directly from the creator or their heirs. Note these rules restrict the VAT rather than freeing it: in the import case that guidance covers, it states you must not reclaim the import VAT as input tax or include it in your scheme calculations, and for works of art obtained from the creator or their heirs it states you must not reclaim the VAT the supplier charged. Both are outside the scope of this guide and are not the everyday case for a jewellery or antiques dealer, so if either applies to a purchase, check the current position with HMRC or your accountant rather than assuming the item is disqualified.

Imports belong here rather than in the list of qualifying sources above. Import VAT is normally charged on entry, so an import does not ordinarily satisfy the no-VAT-charged condition, and where it can go on the scheme at all it is these special rules that let it — not the general test. Confirm which import rule applies before treating an imported item as eligible, and do not reclaim import VAT or fold it into the margin calculation unless that rule permits it.

Neither list is exhaustive — gov.uk sets out the full rules.

The critical step: recording eligibility at purchase

The single most important habit for margin scheme compliance is determining and recording eligibility at the point of purchase. When you buy an item, you must establish that it is goods the scheme covers and that no VAT was charged on the goods. Whether the seller is VAT-registered is a useful signal on the second point but does not settle it — the purchase invoice does. Note that it is VAT on the goods that counts: a genuinely separate service the seller invoices in its own right — an auction catalogue illustration, say, or an indemnity fee where an approved insurance company provides the policy — can carry VAT under the normal rules without disqualifying the item. An auction buyer’s premium is not such a service: where the auctioneer sells under the margin scheme it is part of their own margin, with no VAT shown separately on it, so separate VAT on the goods is a warning that the sale fell outside the scheme. Separate VAT on the premium alone does not carry that meaning: HMRC requires a standard-rated, separately shown premium on imported works of art, antiques and collectors’ items sold at auction under the scheme, so treat it as a point to check with your accountant, not an ancillary charge to wave through. Together, those two answers determine the VAT treatment of that item when you come to sell it.

If you do not record this at the time of purchase, you may find it impossible to demonstrate eligibility months later when the item sells. HMRC expects you to be able to show, for every margin scheme item, that the purchase qualified.

Worked examples for jewellery and antique dealers

Example 1: Victorian diamond ring from a private seller

You attend a local antiques fair and buy a Victorian diamond ring from a private seller for £1,500. You later sell it in your shop for £2,800.

	Amount
Selling price	£2,800
Purchase price	£1,500
Margin	£1,300
VAT due (£1,300 ÷ 6)	£216.67

Under standard VAT, you would owe £466.67 (£2,800 ÷ 6) with no input VAT to reclaim. The margin scheme saves you £250.00 on this single sale.

Example 2: Georgian silver tea service at auction

You buy a Georgian silver tea service at auction for a hammer price of £3,200. The auction house charges a buyer’s premium of £800 (25%), VAT-inclusive with no VAT shown separately. It therefore sits inside the single invoiced total, so it forms part of your purchase price, making your total for margin scheme purposes £4,000 (hammer price plus buyer’s premium). You sell the tea service for £5,500.

	Amount
Selling price	£5,500
Purchase price (hammer + premium)	£4,000
Margin	£1,500
VAT due (£1,500 ÷ 6)	£250.00

Auction buyer's premium

How you treat the buyer’s premium depends on how the auction house invoiced the lot. Where the auctioneer sells under the margin scheme, the premium is part of its own margin with no VAT shown separately (the common case for margin scheme lots), so it sits inside the single invoiced total and forms part of your purchase price, as above. If the invoice instead shows VAT as a separate line on the goods, the auctioneer did not sell the lot under the margin scheme, so rather than folding anything in, treat that as a warning to check whether the item is eligible for your margin scheme at all. VAT shown separately on the premium does not by itself mean that: HMRC requires the buyer’s premium to be standard-rated and shown separately for imported works of art, antiques and collectors’ items sold at auction under the scheme, so check the specific position with your accountant rather than assuming the lot fell outside it. A genuinely separate service the auctioneer invoices in its own right, such as a catalogue illustration or an indemnity fee where an approved insurance company provides the policy, carries its own VAT under the normal rules and is never added to your margin scheme purchase price, because you must not add other costs to the invoiced total; whether that VAT is recoverable as your input tax is a point for your accountant. The same invoice-total test applies to auction-house insurance or carriage charges: include them only where they form part of the applicable purchase-invoice total. In GemJam, record each charge’s treatment when you enter the purchase so the margin is calculated correctly.

Example 3: Art Deco brooch sold at a loss

You buy an Art Deco brooch from a house clearance for £600, believing it to be a desirable piece. After closer examination and poor market conditions, you sell it for £450.

	Amount
Selling price	£450
Purchase price	£600
Margin	−£150
VAT due	£0.00

When the margin is negative, no VAT is due. You cannot, however, use this loss to offset the margin on other items under the item-by-item method. The loss is simply a business expense.

Example 4: mixed stock, margin scheme and standard rate

You have two items in stock:

Item A: An Edwardian sapphire ring — an antique the scheme covers — bought from a private seller for £2,000 with no VAT charged → margin scheme eligible
Item B: A modern diamond pendant bought new from a VAT-registered wholesaler for £1,000 + £200 VAT → standard rated

You sell Item A for £3,500 and Item B for £1,800.

	Item A (Margin Scheme)	Item B (Standard Rate)
Selling price	£3,500	£1,800
Purchase price	£2,000	£1,000 (excl. VAT)
Margin — what the scheme taxes	£1,500	n/a
Selling price excluding VAT — what standard VAT taxes	n/a	£1,500
Output VAT	£250.00 (margin ÷ 6)	£300.00 (£1,800 ÷ 6)
Input VAT reclaimed	£0.00	£200.00
Net VAT owed	£250.00	£100.00

The two £1,500 figures in the table are not the same quantity, and it is worth being clear about why. For Item A it is the margin, which is what the scheme taxes. For Item B it is the VAT-exclusive selling price, because a standard-rated sale has no margin-scheme margin at all: output VAT is charged on the full selling price whatever the item cost you. Compare what each sale leaves you after VAT and the two are further apart than those figures suggest: the ring leaves you £1,250 (£3,500 less the £2,000 you paid and the £250 of VAT on the margin), the pendant £500 (£1,500 net of VAT, less the £1,000 it cost you before VAT). The pendant carries the higher output VAT (£300 against £250) yet the smaller net bill (£100 against £250), because it reclaims £200 of input VAT. That is why tracking eligibility per item is essential: you need to know which scheme applies to each piece in your stock.

Record-keeping requirements

HMRC requires margin scheme dealers to maintain detailed records, with narrow exceptions — the Auctioneers’ Scheme and occasional sales — that do not reach a dealer selling from stock in the ordinary way. The cornerstone of this is the stock book.

HMRC stock book requirements

These conditions have force of law under the VAT (Special Provisions) Order 1995 and are published as VAT tertiary legislation. You must maintain the stock book in written or electronic form, and for each margin scheme item it must record:

A stock number, unique to each item and in numerical sequence
The date of purchase
The purchase invoice number, unless you made out the purchase invoice yourself
The purchase price
The name of the seller (their address belongs on the purchase invoice)
A description of the item, detailed enough to identify it (e.g., “18ct yellow gold Art Deco emerald and diamond ring” not just “ring”)
The date of sale, the sales invoice number, and the name of the buyer
The selling price, or the method of disposal
The margin achieved on the sale and the VAT due on it

For jewellery and antique dealers, the description field is particularly important. HMRC may query items where the description is too vague. A stock book entry reading “gold ring — £500” tells an inspector nothing. “18ct yellow gold Victorian five-stone diamond ring, approximately 0.75ct total, hallmarked Birmingham 1892 — £500” demonstrates proper record-keeping.

Digital record-keeping under Making Tax Digital

Making Tax Digital (MTD) for Income Tax and the margin scheme are separate regimes, and it is worth not confusing them. MTD does not require the stock book itself to be digital: HMRC’s condition remains “written or electronic form”. What MTD requires, if you are in scope, is that you keep digital records of your business income and expenses in compatible software, which totals them up into a quarterly update sent to HMRC every three months. The update is a summary: HMRC does not receive the individual records behind it. In practice that makes an electronic stock book the path of least resistance, because a paper one has to be re-keyed each quarter.

This is one area where many dealers struggle. Generic accounting software like Xero or QuickBooks does not include stock book functionality. Spreadsheets are technically compliant but error-prone and difficult to maintain as your stock grows. Purpose-built inventory software is the most reliable approach.

Purchase records

Beyond the stock book, you must keep evidence of each purchase:

Receipts or invoices from suppliers, even informal ones from private sellers
Auction purchase confirmations showing hammer price and premium
A purchase invoice showing the total price with no VAT charged on the goods, which is the primary evidence that the no-VAT-charged condition was met. The seller having a VAT number does not count against you: where you bought from another VAT-registered business, gov.uk requires that invoice to carry the scheme wording — one of “margin scheme - second hand goods”, “margin scheme - works of art” or “margin scheme - collectors’ items and antiques” — and that wording is the evidence. Where you bought from a private seller you make out the invoice yourself, so make it complete. A signed declaration from the seller can support it but does not replace it

If HMRC audits your margin scheme use, they will want to see both the stock book and the supporting purchase documentation. Missing records can result in HMRC disallowing the margin scheme for those items and assessing VAT on the full selling price.

Common mistakes jewellery and antique dealers make

1. Not tracking eligibility at point of purchase

The most common mistake. If you cannot show what the item was and that no VAT was charged when you acquired it, HMRC can disallow the margin scheme for that item. Record eligibility at the time of purchase, not months later when you sell it.

2. Mixing standard-rated and margin scheme items without proper separation

If you buy some stock from VAT-registered suppliers and some from private sellers, you need to track which items fall under which scheme. Applying the margin scheme to items where you reclaimed input VAT is a serious error that HMRC will penalise.

3. Deducting repair or restoration costs from the margin

Many jewellery dealers have items repaired, cleaned, or restored before selling. These costs cannot be added to the purchase price to reduce the margin. Your margin is strictly the difference between what you paid for the item and what you sold it for. Repair costs are a separate business expense — but the VAT on them is not lost: reclaim any VAT a VAT-registered restorer charges you as input VAT on your VAT return in the normal way, just not through the margin scheme.

4. Incorrect treatment of buyer’s premium and fees

At auction, where the auctioneer sells the lot under the margin scheme, the buyer’s premium is part of its own margin with no VAT shown separately and forms part of your purchase price. If the invoice instead shows VAT as a separate line on the goods, the auctioneer sold outside the margin scheme, so treat that as a question of whether the item is eligible for your margin scheme at all rather than a premium to fold in. Separate VAT on the premium alone need not mean that — HMRC requires a standard-rated, separately shown premium on imported works of art, antiques and collectors’ items sold at auction under the scheme — so check the specific position with your accountant. Separately, card processing fees, marketplace fees, and platform commissions on the sale side are not deductible from the selling price. The selling price is the total amount the buyer pays you. See our guide to Shopify and the margin scheme for more on how platform fees interact with margin calculations.

5. Inadequate item descriptions in the stock book

“Necklace — £300” is not an adequate description. HMRC expects descriptions that would allow them to identify the specific item. For jewellery, include the metal type, era or style period, gemstones, approximate weight, and any hallmarks or maker’s marks.

6. Failing to issue margin scheme invoices correctly

When you sell under the margin scheme, your invoice must not show VAT as a separate amount. The selling price is VAT-inclusive, but the VAT element is not itemised. If you issue an invoice showing VAT separately, the buyer could potentially reclaim it, creating a mismatch in the VAT chain.

Global Accounting Scheme vs item-by-item

HMRC offers two methods for calculating margin scheme VAT. The right choice depends on your stock profile and trading patterns.

Item-by-item method

This is the standard approach. You calculate the margin on each individual sale:

Margin per item = Selling price − Purchase price
VAT per item = Margin ÷ 6 (if margin is positive)
Losses on individual items result in nil VAT for that item but cannot offset gains on other items

Best for jewellery and antique dealers who:

Trade in higher-value pieces with variable margins
Want precise VAT calculations per item
Have relatively few transactions per VAT period
Need detailed per-item reporting for business analysis

Global Accounting Scheme

Under this method, you calculate the total margin across all eligible sales in a VAT period:

Total margin = Total selling prices − Total purchase prices (for the period)
VAT due = Total margin ÷ 6
Losses on individual items automatically offset gains within the same period, and a period whose purchases exceed its sales produces a negative margin you must carry forward to the next period and add to that period’s purchases — not offset against any other figure

Best for dealers who:

Handle high volumes of lower-value items (costume jewellery, small antiques, collectables)
Want simpler calculations per VAT period
Benefit from loss offsetting within the period

Which should you choose?

Many jewellery and antique dealers find that a combination works best. Use the Global Accounting Scheme for lower-value stock (silver trinkets, costume pieces, small collectables) and the item-by-item method for higher-value pieces. HMRC permits this approach, provided you maintain proper records for both methods.

For detailed guidance, see VAT Margin Schemes and Using the global accounting VAT margin scheme. VAT Notice 718, which older articles still cite for both schemes, was withdrawn on 23 December 2021.

How GemJam automates margin scheme compliance

Managing the margin scheme manually, with spreadsheets, paper stock books, or generic accounting software, is time-consuming and error-prone. GemJam is inventory management software purpose-built for dealers of jewellery, antiques, watches, and luxury goods, with the VAT Margin Scheme built in from the ground up.

What GemJam handles for you

Automatic margin calculation: GemJam works out the margin and the margin scheme VAT when an item sells, using the purchase price you recorded when the item entered your stock. Items you flagged as standard-rated are taxed under the normal rules instead
Digital stock book: every item is logged with a stock number, full description, purchase and sale details, the seller and buyer names, its sales invoice number, and a reference to the purchase. It does not replace your supplier and sales invoices — keep those alongside it, as they carry the seller and buyer addresses, and the supplier’s own purchase invoice number, that the stock book does not
Eligibility tracking: you set the VAT treatment on each item as it enters stock and GemJam holds it against that record through to the sale, the invoice, and the VAT return. GemJam does not decide eligibility for you — that judgement stays with you and your paperwork
VAT reports: generate margin scheme VAT summaries per period, ready for your VAT return
Shopify integration: if you sell online through Shopify, GemJam syncs your listings while keeping margin scheme records accurate. See our guide to Shopify and the margin scheme for details
Digital records you can export: your stock and sales records are kept digitally and can be exported as CSV, which helps if you are a sole trader or landlord within Making Tax Digital for Income Tax. GemJam keeps the records but is not itself HMRC-recognised MTD software and does not submit updates to HMRC — you or your accountant file through recognised software. Read more about MTD for second-hand goods dealers

You can also use the VAT Margin Scheme Calculator to see how much you could save on individual items.

Stop wrestling with spreadsheets

If you are currently tracking your margin scheme in a spreadsheet, or worse on paper, the risk of errors and the time spent on administration only grows as your business does. GemJam replaces that manual work with automated, digital record-keeping.

Start your free trial →

Frequently asked questions

Can I use the VAT Margin Scheme for jewellery I buy at auction?

Often, but the consignor’s status is not the test. Two conditions have to hold: the lot has to be goods the scheme covers, meaning second-hand goods, works of art, antiques, or collectors’ items, and the auction house must have charged you no VAT on the goods themselves. A lot consigned by a non-VAT-registered individual, or sold to you under another dealer’s own margin scheme, normally meets the second condition; a lot where the auction house charged you VAT on the hammer price does not qualify, unless one of the special rules applies — for certain imported works of art, antiques and collectors’ items, and for works bought from the creator or their heirs, a lot can go on the scheme despite VAT having been charged, so check which rule applies. It is VAT on the goods that matters here, not the buyer’s premium in itself. Precious metals, investment gold, and precious stones sit outside the scheme however the lot was consigned, and gov.uk carries the full eligibility rules. Your purchase price is the total price on the margin scheme purchase invoice, and where the auction house sells the lot under the margin scheme the buyer’s premium is part of its own margin with no VAT shown separately on it, so it sits inside that total and forms part of your purchase price. Separate VAT on the goods is the reliable signal that the auction house did not sell the lot under the margin scheme, so treat it as a prompt to check whether the item is eligible for your margin scheme at all rather than a charge to fold in. Separate VAT on the premium alone does not settle it: HMRC requires the buyer’s premium to be standard-rated and shown separately for imported works of art, antiques and collectors’ items sold at auction under the scheme, so check the specific position with your accountant rather than assuming the lot was sold outside the scheme. Whether any VAT on a genuinely separate service such as a catalogue illustration is recoverable is likewise a point for your accountant.

Do I need to keep a stock book for the VAT Margin Scheme?

Yes, with two narrow exceptions. HMRC requires margin scheme dealers to maintain a stock book recording each eligible item with a unique stock number, date of purchase, purchase invoice number (unless you made out the purchase invoice yourself), purchase price, seller name, item description, date of sale, sales invoice number, selling price, the margin achieved, and the VAT due on it. The force-of-law rules carve out only two cases — the Auctioneers’ Scheme and occasional sales — and a dealer selling from stock in the ordinary way falls within neither. HMRC accepts the stock book in written or electronic form. Making Tax Digital for Income Tax does not change that, though it separately requires in-scope businesses to keep digital records of income and expenses.

What is the difference between the Global Accounting Scheme and item-by-item margin scheme?

Under the item-by-item method, you calculate the margin on each individual sale. Under the Global Accounting Scheme, you calculate the total margin across all eligible sales in a VAT period by comparing total selling prices to total purchase prices. The Global Accounting Scheme is simpler for high-volume, lower-value stock. The value test is on what you paid, not what you sell for: HMRC says you cannot use the scheme if an individual item has a purchase value of over £500.

Can I use the margin scheme for items I repair or restore before selling?

Yes, but the cost of repair or restoration cannot be added to your purchase price. Your margin is calculated on the difference between what you paid for the item and what you sold it for. Repair costs are a separate business expense — they do not reduce the margin on which VAT is calculated. That does not mean the VAT on them is lost: any VAT a VAT-registered restorer charges you on the work is reclaimable as input VAT on your VAT return in the normal way, just not through the margin scheme.

What records does HMRC require for margin scheme jewellery sales?

HMRC requires a stock book with a unique stock number for each item, the purchase date, the purchase invoice number (unless you made out the purchase invoice yourself), the seller name, a description of the item, the purchase price, the sale date, the sales invoice number, the buyer name, the selling price, and the VAT margin calculation. Seller and buyer addresses belong on the corresponding invoices rather than in the stock book. For jewellery specifically, the description should be detailed enough to identify the piece — for example, “18ct yellow gold Victorian garnet ring” rather than just “ring”.

Can I switch between the margin scheme and standard VAT?

You do not switch your entire business between schemes. The VAT treatment is settled item by item, on what the piece is and on whether VAT was charged when you bought it. Buying from a private seller usually means no VAT was charged, though it is the purchase invoice that settles that, and the piece still has to be goods the scheme covers. If a dealer invoiced you with VAT on the goods, you must account for that item under standard VAT, subject to the special rules that apply to certain imported works of art, antiques and collectors’ items and to works of art bought from the creator or their heirs. You can have both margin scheme and standard-rated items in your stock simultaneously.

Does the VAT Margin Scheme apply to watches and luxury goods?

Yes, where both eligibility conditions are met. Watches, jewellery, antiques, art, furniture, and silverware are the kind of goods the scheme covers, so the type of goods does matter, and it can rule an item out on its own: precious metals, investment gold, and precious stones are excluded however you acquired them. The second condition is that you were charged no VAT when you bought the item. A non-VAT-registered source is the usual route to that rather than the test itself, because a VAT-registered dealer selling to you under their own margin scheme charges no VAT and that purchase can still qualify. This is not the complete list of conditions or exclusions; gov.uk carries the full eligibility rules.

What happens if I sell a margin scheme item at a loss?

If you sell an item for less than you paid for it, the margin is negative and no VAT is due on that sale. Under the item-by-item method, you simply record a nil VAT liability for that transaction. You cannot use the loss to offset margins on other items. Under the Global Accounting Scheme, however, losses are automatically offset against gains within the same VAT period because margins are calculated in aggregate. If a whole period’s purchases exceed its sales and the overall margin is negative, that negative margin is not written off: you must carry it forward to the next period and add it to that period’s purchases, and you cannot offset it against any other figure. A dealer who does not carry it forward over-declares VAT in the following period.

Do I charge VAT to customers on margin scheme sales?

You do not add VAT on top of the selling price. The selling price is VAT-inclusive — the VAT element is embedded within it — and your sales invoice must not show VAT as a separate amount. What the scheme changes is how much VAT you owe HMRC: it is calculated on the margin rather than on the full selling price. It does not set what you charge, which stays a commercial decision.

Can I reclaim VAT on items I buy under the margin scheme?

No, not on the goods. An item can only go on the margin scheme if you were charged no VAT on the goods, so there is no input VAT on the goods to reclaim. A genuinely separate service is a different question: where an auction house invoices a supply in its own right — a catalogue illustration, say, or an indemnity fee where an approved insurance company provides the policy — that carries its own VAT under the normal rules, and whether it is recoverable as your input tax is a point for your accountant. A buyer’s premium is not such a service: where the auctioneer sells under the margin scheme it is part of their own margin with no VAT shown separately. Separate VAT on the goods is the reliable signal the lot was sold outside the scheme; separate VAT on the premium alone does not prove that, because HMRC requires a standard-rated, separately shown premium on imported works of art, antiques and collectors’ items sold at auction under the scheme — a point to check with your accountant. If a supplier does charge you VAT on the goods, that item normally falls outside the margin scheme, and the VAT is recoverable only under the ordinary input-tax rules. The special rules for certain imported works of art, collectors’ items and antiques, and for works of art bought from the creator or their heirs, are the exception: an item can go on the scheme despite VAT having been charged. Those rules restrict the VAT rather than freeing it, though — gov.uk states you must not reclaim the import VAT as input tax or include it in your scheme calculations, and must not reclaim the VAT the supplier charged on works of art obtained from the creator or their heirs. Check which rule applies rather than assuming you can reclaim.

This guide is based on GOV.UK VAT Margin Schemes, Using the global accounting VAT margin scheme, and the force-of-law conditions in VAT tertiary legislation: margin schemes. Tax rules can change, so always check the latest HMRC guidance or consult a qualified accountant for advice specific to your circumstances.

GemJam is inventory management software purpose-built for UK dealers of jewellery, watches, antiques, and luxury goods, with built-in VAT Margin Scheme compliance and a digital stock book.