VAT for Galleries

Hi Guys looking for advice on VAT for art galleries. We have had conflicting advice from HMRC over the last few years and want to finally clarify a few pointers.

Firstly we sell mainly online. Most of the products we sell we make ourselves and accept that pay VAT on the whole amount.

Secondly and most importantly we do sell some other artists products. These artists are not VAT registered and we do not see the products. They are ordered from the artist and sent directly to the customer from the artist.

The issue that we have is that we don't think we should be paying VAT on the entire sale. We feel that we should be only paying vat on our portion.

My accountant tells me that because the artist is invoicing us for the full amount (their portion) that we have to pay VAT on the whole sale price as they are selling the goods to us, but i am not sure.

Is it all down to how we are invoiced>?

Example:

Sale price of painting £200.00
Artists price of painting £100.00
Our commission £100.00

Currently paying 15% VAT on £200.00

Any help would be greatly appreciated.

 

Hi

My understanding would be that if you are buying from the artist it is a purchase therefore the artist would need to invoice you for the amount they are selling it for (£100) and as they are not vat registered they wouldnt charge you VAT, and then you selling it at £200 would add VAT as you are selling it and are VAT registered.

Hope thats what your asking

 

Kind of. Thanks for taking the time to reply but i think it might be slightly more than that.

The problem is that we don't actually see the goods so we would expect not to add VAT onto the whole amount (200.00). Most galleries operate a system where they take in an item, sell it for double and pay VAT on just their amount.

We are an online seller and were adviced to pay VAT on the whole amount by the VAT office. Then we were advised to pay VAT on just our part by the VAT office and now my accountant has stuck his ore in and changed it all back again.

I don't see why the VAT office should get a percentage of our amount and that of someone who is not vat registered. I guess it all boils down to who owns the art?

We never own the art or the products, we simply sell them via our website and the customer sends directly to the customer.

 

There are two approaches to this problem.

The first solution, which is best suited to tradtional face to face sales, is to make it clear on the painting that you are selling as agent for the artist. The £200 that you collect then belongs to the artist. Before you pay it over, you raise a charge to the artist for £100 inc VAT so that the artist gets the net £100. The £200 is not recorded in your sales - only the £100 less VAT.

The whole question of supplies through agents is discussed in the VAT guide sections 22 -25. That can be applied to any sale but there is a better method for sales of works of art.

This involves the use of a margin scheme, detailed in VAT notice 718. This kind of scheme has been around for a long time, but was originally intended for used cars and other second hand goods. It now covers works of art, even if new, but not necessarily all items that are sold by a gallery - various craft items are excluded, which is why I have given the above link.

The margin scheme allows you to account for VAT on your profit on the item, so in the case that you have given your margin is £100 and you account for VAT at 7/47ths of the £100 (back to the old 17.5% rate!) which is what you are looking to do.

There are strict record keeping requirements, explained in the notice, which involve keeping a stock book of all margin items. I can see that you say that you never own the item, but technically I think that title can pass to you when the artist invoices you, and you pass title to the ultimate buyer on delivery.

We have a few proper VAT experts on this forum, and they'll probably be back on next week, and correct or add to this reply if necessary. I normally leave VAT queries to them, but given that you've had an incorrect response I thought that I'd chip in now.

 

Hi, I am in the same situation

Hi, I am in the same situation. I know this is an old thread but I would love to hear how you resolved this problem.
Many thanks
Alex

 

Fourblank walls hasn't been seen since 2010.

 

Nothing has really changed and I think David's advice above still stands.

I don't have any experience in selling art but I have sold apps through the Apple app store (which acts as an undisclosed agent) and have had to deal with VAT issues around this before.

It ultimately comes down to your contractual relationship with the artist. If you're acting as an undisclosed agent, the artist is effectively selling the artwork to you and then you are selling it on to the end customer. As far as the end customer is concerned they are buying from the gallery and your "commission" is simply the markup you add to the price. In this case you account for VAT on the whole sale.

The other scenario is where you are acting as an agent (not an undisclosed agent) and its clear between all parties that you're simply acting as an agent. In this case, the customer is buying directly from the artist and you invoice the artist for your fee/commission for facilitating the sale. If the artist was to issue any invoice, it would be to the end customer, not the gallery. In this case you account for VAT on your commission only.

See David's post re: margin scheme if that applies to you, I don't know much about that.