I act for an individual who is in the process of buying an expensive work of art and raised the subject of vat, upon enquiring with the gallery they forwarded the following to me as an explanation of their vat treatment. It's not something that I've come across before and the explanation looks a bit wobbly, has anybody else seen similar.
"There is an approved HM Revenue and Customs scheme applicable to VAT registered organisations in the business of selling works of art, antiques and second-hand goods for whom it is recognised that their purchases for re-sale are often bought from individuals who are themselves not registered for VAT and therefore are not in a position to reclaim an element of VAT in their purchase price.
This scheme means that the seller does not have to pay the full rate of VAT on its sales of items which fall into this category but is required to declare on an invoice that the sale is made under the scheme and show no reclaimable VAT for the purchaser"
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The gallery is using the margin scheme. They don't have to declare the amount of VAT included in their invoice total, as this would reveal their profit margin. If your client is a trader he or she would be doing the same on their sale of the painting. If he or she is a private individual the amount of VAT included in the price isn't relevant to them.
Yes this is common for works of art and antiques. I don't think they are saying that 'no vat is charged' just that the vat they pay is included in the price agreed. What is the issue here? Is your buyer trying to recover input tax?
You don't explain whether your client is buying the work of art for their private use, for display in their (?VAT registered) business or for resale. You have not read the guidance in the link provided by fawltybasil2575. If the gallery is buying the work of art from the artist, importing it and then selling it to your client, there is an example in the guidance. If the gallery is importing the painting on behalf of your client, it may be paid a commission by the artist which is included in the price paid by your client, in which case the VAT paid on import is non-recoverable input tax for your client if the work of art is for private enjoyment. If the gallery is using the margin scheme, it does pay VAT on the difference between the value at import and the amount charged to your client (similar to second hand car margin scheme). However, this VAT is not invoiced to your client.
Although helpful as far as it goes, the guidance referenced by Basil does not confirm that use of the scheme is optional, ie it can be used for some sales with normal treatment for others.
See here
https://www.gov.uk/guidance/the-margin-and-global-accounting-scheme-vat-... (s.2.10)
The OP also needs to consider the implications on eventual sale of the painting of choosing to be charged VAT now though.
That is to say if they get charged VAT on the purchase now, it may be better for them to not recover it, rather than have to account for VAT on the full sale price when they come, in time, to sell it on to a non-VAT registered collector.
In that case, it may be better to not be charged the VAT in the first place.
EDIT: WAIT!! The gallery must have been charged import VAT when the painting entered the UK, and in such circumstances, they CANNOT use the margin scheme if selling on to a VAT registered trader.
The gallery CAN use the margin scheme, provided they meet the conditions set out at Para 10 of VAT Notice 718
No. The painting came from the US. The gallery would have been charged import VAT when it came to the UK (from the US artist). And which wouldn't have been recoverable until such time as the gallery intended to deal with the painting otherwise than under the margin scheme.
Possibly. The client needs to understand the VAT position on the eventual sale, and that the VAT cost might ultimately be borne by the company, and that might leave the company worse off overall.
Note also that the input VAT recovery might be blocked by HMRC, unless the company can demonstrate its intention to use the painting for the purposes of making one or more taxable supplies.
Call me cynical, but I always suspect that when companies 'invest' in fine art, it is largely a cover for the owner wanting to get something to hang in their dining room (as art is such a volatile investment, with high purchase, sale & holding costs).
I wonder if the company will eventually sell the picture to a family member for rather less than the company paid for it...
Call me cynical, but I always suspect that when companies 'invest' in fine art, it is largely a cover for the owner wanting to get something to hang in their dining room (as art is such a volatile investment, with high purchase, sale & holding costs).
Hmm, does that mean a bik would arise? Surely not?
The following extract from HMRC might assist, or else make it more complicated:
3.4 Imported works of art, antiques and collectors’ items
Certain works of art, antiques and collectors’ items are entitled to a reduced valuation at importation. This is reached by calculating a value for duty using the appropriate duty method, adding any additional costs (see paragraph 3.1) and multiplying the total by 25%. Applying the 20% rate to this value gives an effective VAT rate of 5%.