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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
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Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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I own an art gallery which is not VAT registered, as the turnover

Resolved Question:

I own an art gallery which is not VAT registered, as the turnover is below the threshold. We sell works of art, retaining commission for the gallery from the sale price of the artwork.

What should I do if an artist quotes their retail price as £xxx plus VAT? (Because preumably either they make enough to be VAT registered, or they sell their work through other galleries which are VAT registered?)

If we sell without the VAT, then in theory we are undercutting the price asked in those other galleries - although they don't retain the VAT. As far as the customer is concerned, our price is cheaper. Undercutting other galleries is very much frowned upon.

If we add the VAT - can we do this if we are not VAT registered? - then what do we do with it. We can't keep it. Could you please advise? Thank you.
Submitted: 2 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 2 years ago.
Hello and welcome to the site. Thank you for your question.

Please clarify

On your invoices, who is the seller..you or the artist?
Do you raise an invoice to the artist for commission due?


Many thanks

Customer: replied 2 years ago.

We are the seller who deals direct withthe public. We then deduct the gallery commission from the price the customer pays us, and pay the remainder to the artist.

Expert:  taxadvisor.uk replied 2 years ago.

Lynsey.... thank you for your reply...

As you are not VAT registered, you can't add VAT to the value of goods.

If the artist is looking for a value inclusive of VAT you will have to show your sales value inflated to reflect VAT. Bear in mind, the customer will not be able to reclaim any VAT as you are not VAT registered.

Furthermore, your commission will be on the inflated value (value adjusted to equivalent of VAT) and you pass the net of commission to the artist.

Here is an example....
Artist to you sells for 1,000+200(VAT) = £1,200.
You are not VAT registered and the artist is looking for £1,200 from you less commission.

You sell for 1,200 (your price includes the VAT you have suffered but unable to claim) but you show £1,200 as sales value.

Your commission should be based on £1,200 and not £1,000.. this is how I would operate if it were my business.

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.





Customer: replied 2 years ago.

Thank you for your reply. Unfortunately I am still not clear on this.


 


When you say 'this is how I would operate if it were my business', does this mean that your answer is a personal opinion, or does the answer show what is legally required?


 


Staying within the law is our first priority, then not undercutting other galleries - which we would not be doing if we inflated the price to add the 'VAT'.


 


But would we be within the law to sell at the VAT inclusive price, and deduct commission on the inflated price?


 


Actually, I'm not sure that the artist IS asking for the 'retail plus VAT' price, because they can't keep the VAT either.


 


Sorry that this is so complex. Well, to me anyway. I realise that basically we can sell at whatever price we chose, but we don't want to get into trouble with the VAT.

Expert:  taxadvisor.uk replied 2 years ago.
Lynsey, thank you for your reply.

My answer is not based/restricted to personal opinion but this is how it should be operated based on correct accounting/VAT practices.

As you are not VAT registered you don't have to either show VAT as a separate amount or
state this is inclusive of VAT.

I hope this is helpful
Customer: replied 2 years ago.

Thank you again. Yes, that is helpful. So, to take your example, we take a retail price of £1000 +VAT, which is £1200.


 


We put this as the asking price.


 


Our commission is, say 45%, so do we retain 45% of the £1200 and pay the remainder to the artist, or retain 45% of the £1000 and pay the rest to the artist, plus the VAT of £200 that we had to add?


 


I wouldn't think there are too many artists making enough to be VAT registered (with some exceptions), but they will obviously be selling with other galleries that are VAT registered, so have to quote the 'retail plus VAT' price.

Expert:  taxadvisor.uk replied 2 years ago.
Lynsey, thank you for your reply.

You should deduct 45% of £1,200 and pass the rest to the artist.

I hope this is helpful and answers your question..

If you are happy and there are no more issues I will appreciate if you would kindly rate the service I provided to ensure I get credited for it.


taxadvisor.uk, Chartered Certified Accountant
Category: Tax
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Experience: FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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