VAT on works of art

VAT on works of art

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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" 

 

Replies (21)

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By fawltybasil2575
30th Jul 2018 10:59

This may help:-

https://www.gov.uk/vat-margin-schemes

Basil.

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Replying to fawltybasil2575:
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By CW2012
30th Jul 2018 11:06

Thanks, the gallery is suggesting that there is no vat charged, the painting is brand new, painted in America by a famous US citizen. Under the margin scheme there would be some vat otherwise the gallery wouldn't be making a profit. I'm aware of the bond scheme for items held and deemed not to have entered the UK for vat purposes but how can the gallery charge no vat when selling the painting. The painting is expensive so the vat would be significant.

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Replying to CW2012:
Hitch photo
By Kevin Kavanagh
30th Jul 2018 11:52

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.

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By WhichTyler
30th Jul 2018 11:56

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?

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Replying to WhichTyler:
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By CW2012
30th Jul 2018 12:05

Yes, he is attempting to recover the vat through his company, the Vat could be quite a considerable amount. However being suggested is that there is no input tax to be reclaimed under the margin scheme. Is it possible for the gallery to opt for normal vat rules on this one item or do they have to apply the margin scheme across the board.

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By ruth.julian
30th Jul 2018 12:09

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.

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Replying to ruth.julian:
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By CW2012
30th Jul 2018 12:20

The painting is being purchased by a UK vat registered trading company as a way of diversifying its investments, it is a cash positive business. The painting will be resold sometime in the near future. I took onboard the second scheme but was unsure as to whether a gallery can choose to supply under normal vat rules and charge 20% on the whole sales price or did it have to use the margin scheme on all its trade.

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Replying to CW2012:
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By CW2012
30th Jul 2018 12:21

Sorry just reread my original posting, it is to be bought by a UK company, not an individual.

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Replying to CW2012:
By Ruddles
30th Jul 2018 12:52

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)

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Replying to Ruddles:
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By Portia Nina Levin
30th Jul 2018 13:24

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.

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Replying to Portia Nina Levin:
JCACE
By jcace
30th Jul 2018 13:33

The gallery CAN use the margin scheme, provided they meet the conditions set out at Para 10 of VAT Notice 718

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Replying to jcace:
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By Portia Nina Levin
30th Jul 2018 13:39

Agreed. As you were!

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Replying to Portia Nina Levin:
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By CW2012
30th Jul 2018 13:42

The company director has already purchased a painting from the same gallery in his own name, there was no mention of vat, not that it mattered in that case, It was a cheaper painting though. In this case somebody somewhere must have then suffered the input vat.

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Replying to CW2012:
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By WhichTyler
30th Jul 2018 13:56

Yes. The Gallery. On its margin.

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Replying to WhichTyler:
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By Portia Nina Levin
30th Jul 2018 14:08

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.

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By CW2012
30th Jul 2018 14:36

Sorry to labour this one but it seems that the purchaser would be better off asking the gallery to supply the painting under the normal vat rules, suffer the increased cash cost but be able to reclaim the full input vat including the original margin part. However the company would have to sell the painting plus vat and if the next purchaser was an individual this would a substantial cost.

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Replying to CW2012:
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By Portia Nina Levin
30th Jul 2018 14:56

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.

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By WhichTyler
30th Jul 2018 15:03

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...

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Replying to WhichTyler:
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By Portia Nina Levin
30th Jul 2018 15:17

You're cynical.

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Replying to WhichTyler:
Red Leader
By Red Leader
30th Jul 2018 17:52

WhichTyler wrote:

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?
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By djbrown
03rd Aug 2018 16:57

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%.

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