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Ask Your Own Question, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 5145
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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My husband (a successful artist) died this year. He has left

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My husband (a successful artist) died this year. He has left me with a stock of unsold paintings that are worth a lot of money. I am being asked to estimate the value of them and record that on his (last) VAT return. I am being told that I will have to pay the (estimated) VAT immediately even before they are sold. Is this right, I would have thought that VAT would only be payable after the sales of any of the paintings? By the way I don't have any spare money, just the paintings!

Hello and welcome to the site. Thank you for your question.

Please advise if you are carrying on the business of your late husband as his personal representative until such time that the paintings are sold.

Many thanks

Customer: replied 3 years ago.

As executor of the Will I was just planning to divide the paintings (by 4), 3 children and myself as part of his estate. Obviously we may sell all or at least some of them at some point, but it is impossible to know what they will be worth, as that very much depends on the direction of the art market at any time. What should/can I do to avoid paying VAT even before I even receive any money from the paintings?

Thank you for your reply.. Not wishing to upset you in anyway,.... you said your late husband was a successful artist, what do you think these paintings would be worth for a quick sale in current market conditions? Did he do direct sales or through some agents? Have you had them valued? Many thanks

Customer: replied 3 years ago.

They are worth tens of thousands of pounds, so the collection is worth hundred of thousands of pounds all together (bearing in mine what i said about the ups and downs of the market-which means that some or all of them may remain unsold for years). I am trying to fathom, how their total worth will that effect (what i see perhaps naively ) as the simple question about whether (in principal) the VAT man can claim VAT from me now on pictures that are as yet unsold?

Is that question as simple as it sounds, because no one has yet been able to tell me if (in principle) they can do this?

Thanks for your help in this matter, I look forward to hearing from you,

Thank you for your reply...

Closure of your late husband’s business would necessitate cancellation of VAT registration. It appears from your response that the business has not not carried on since your husband’s demise.

Any finished paintings in stock would have to be valued for VAT purposes and inheritance tax purposes. If you can not work this value out, you should value the goods at the price it would cost to produce them at the time your registration is cancelled. This would reflect the cost and not potential profit at a future date. Normally accounting rules state, and it is an acceptable base, that stock should be valued at the lower of cost of net realisable value.

You may establish that trying to sell these paintings in the open market at the wrong time would fetch a much discounted sale proceed and that may form the bases of your valuation.

VAT can’t be avoided but you can request deferrment of payment on the grounds that monies would only be realised once some of the paintings are sold.

My advice would be to maintain a positive dialogue with VAT office to establish

- The VAT liabilty

- A payment plan to clear the VAT liability.

I had a chat with VAT Office and was unable to get a definitive response. The advisor suggested you write to them and ask for a ruling on valuation of unsold paintings before you.

Don’t be afraid of appealing against VAT Office decision and take the matter to VAT tribunal. At that point, you may wish to engage a VAT expert to present your case.

Sections relevant from VAT Notice 700 can be found on this link

7.6 -Cost of supply

9.1 - Disposal of business asset

19.5 - Recording supplies you make and working out your output tax.

You may also find this article of interest

I hope this is helpful and answers your question.

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Best wishes.