VAT on commission

Have a read on following thread which was on selling on behalf of artist. If the item you are selling is one of the qualifying items, then yes, you can use margin scheme for those items and pay vat on commission only.

Have read on the following link regarding margin scheme http://www.hmrc.gov.uk/vat/start/schemes/margin.htm

and here is notice 718

It is a law and there is no how HMRC view. As long as you follow the rules regarding second hand goods scheme, and check the items you are selling are wihin definition of art, antiques and collectors items.

You may need to talk to your accountant about this. Hopefully he/she will be able to give you reassurance.

Hi Philludg
As I explained on the previuos thread, you need to establish the legal aspect of the trransaction to know if you are selling the picture as prinicpal or agent before you can verify the VAT treatment. I'd strongly recommend that you discuss this with your accountant or solicitor and then have a look at the section on "Agents" in the VAT Guide 700 which is on the HMRC website. There's also a lot of information in the internal manuals on teh subject which are also on the website.
There are loads of issues involved on this subject and the term "agent" is used to refer to a range of situations which is the main reason why there isn't a simple yes or no answer.
The reason that you get conflicting advice from HMRC is that to be honest most of teh officers answering the questions have limited knowledge and experience and I know of loads of situations when people have called in to try and get the answer they want and keep going until they do!
Marie
VAT Exchange

Hi Marie

I failed to understand why one need to establish legal aspect when using second hand goods/margin scheme. As long as you keep the required record.

Its got nothing to do with Agents. The vat notice 718, does not say anywhere that you have to be an agent in order to use margin scheme.

But I am interested to know if I missed from legislation or notice 718.

philludg said:

Yes I think it's time to have a chat with my accountant, just been looking at notice 718, one minute I think I'm ok, and then I'm not
And is a painting by an artist, given to a gallery to sell second hand, you could say yes or no, a very grey area.

Click to expand...

Here is an extract from vat notice 718, Para 2.7

2.7 Which goods are eligible and ineligible for the scheme?
...
(b) Works of art. Works of art covers pictures, paintings, collages and drawings executed by hand by the artist. Paragraph 25.1 covers most items that would be considered works of art in the ordinary usage of the word. But craft items and items produced in a technical or industrial context may not qualify. If in doubt, check the list in paragraph 25.1.

There is a list in Para 25.1 which items are included.

RAL said:

Hi Marie

I failed to understand why one need to establish legal aspect when using second hand goods/margin scheme. As long as you keep the required record.

Its got nothing to do with Agents. The vat notice 718, does not say anywhere that you have to be an agent in order to use margin scheme.

But I am interested to know if I missed from legislation or notice 718.

Click to expand...

Hi RAL

The margin schemes can only be used by people who are buying and selling goods as principal, ie they take legal title to the goods concerned. If you are selling "on commission" the everyday use of that phrase would suggest that you are selling on behalf of someone else, ie as agent, and never actually own the goods concerned. You receive your remuneration in the form of commission from the buyer or seller or both.

So in fact you could be an agent selling on commission for a vendor who uses one of the margin schemes as he (ie the vendor) is buying and selling goods as principal.

For VAT purposes, your turnover would be the value of teh goods if you are selling them as principal but if you are selling as agent, your turnover would normally be the commission.

However it's not that simple because ofteh agents act in their own name because either teh buyer or seller wants to remain anonymous. So you think you're buying from the agent, but he never actually owns the goods. In this scenario, the agent would have to treat the total value of the sale as his income and charge VAT on the sale. He would also treat as income any additional commission or fee he receives from teh buyer or seller.

So really before you can work out what to do from a VAT point of view, you have to know what is happening from a contractual point of view. And over the years I've seen the terms used in several different ways - for example people often call themselves "agent" even though they are buying and selling as principal.

I've just had a quick flick through the VAT case law on agency issues and nearly all of the cases have arisen because teh parties involved have not applied the VAT rules correctly because they've not understood their own contractual position, ie whether tthey are agent or principal.

I'm always learning things on these issues and whenever I'm advising a client on how much VAT to charge on a particular transaction, the starting point is nearly always to check out the contract for the transaction concerned. It goes back to fundamentals really - in order to verify the VAT treatment of a transaction, I have to know the nature of the supply concerned. So I often work with solicitors and/or accountants to verify the legal position.

Hope this clarifies things, I'm always open to alternative ways of looking at things though and teh value of using these forums is that we get the benefit of other peoples' experiences. For example someone might have a ruling from HMRC for one of their clients which seems to run against the normal rules, so it's important to know about those situations.
Marie
VAT Exchange

This is a minefield. We were told by the VAT office to include VAT on the whole sale price. So we have always done that. Our price plus their price plus VAT.

Anything else is dicing with the wrath of the VAT officer.

If you get an inspection and they find that you have overpaid, you get a refund.
If you get and inspection and they find that you are wrong, you get a big bill.

Best to be secure.

You only have to pay VAT on the commission you earned. However, the thing to think about is do you need to be VAT registered at all. Unless your commission equates no more than the £66k deregistration threshold over the last 12 months I would strongly recommend dereg. I am a former VAT Control Officer,(Vatman) that was based in Birmingham, Five Ways.

About the conflicting info you got when ringing up your local Vat Office (LVO), thats because the 'enquiries desk' people were AO's and are not VAT technically trained. Its on the job training. Its only visiting VAT Officers that go through BVT as it was known which takes a year. Regards.

I have just got off the phone with the VAT officer again! What they said was "It depends on who is selling the item". Basically if you own a gallery and someone walks in a buys a painting you would have to pay VAT on the whole sales amount unless it is clear that the artist is selling the work and you are the agent. IF you have a gallery name and you sell the item on behalf of the artist but you handle the goods or don't make it clear you are only an agent, you are liable for whole amount.

Sounds wrong to me but this is what they say time and time again.