VQOTW: Accounting for sales as an agent

My client has a gift shop with a gallery selling artworks on behalf of local artists, some of whom are registered for VAT. We charge commission on sales; on what values do we declare VAT?

How VAT is declared on the artwork sales depends on how your client is acting, i.e. as a disclosed or undisclosed agent. As a disclosed agent the principal in the sale will be the artist, and if an invoice is issued it will be in the name of the artist who will account for any VAT due on the sale. Your client would only account for VAT on any commission charged.

An undisclosed agent makes the sale, and issues any invoice, in their own name and, for VAT purposes only, they are treated as making the supply of the goods.  They account for VAT on the sale as well as VAT on the supply of their services.

Unless it is made clear in the shop that these goods are being sold on behalf of an identified third party, your client will be an undisclosed agent. VAT has to be accounted for on the sale and on any commission charged regardless of whether the artist is VAT registered or not.

Where the sale is on behalf of a VAT registered artist the shop accounts for VAT on the full selling price. The artist should issue an invoice for the same value to the shop. This has the effect of netting off the sale VAT within the shop’s VAT account. The shop issues a commission invoice to the artist and accounts for output tax on this.

Alternatively, they have the option of adopting the commissionaires’ rules as set out in Notice 700 paragraphs 24.2.3 and 24.2.4, where the amount invoiced by the principal is reduced so that the agent in effect gets his ‘commission’ by marking up to the selling price. Output tax will be accounted for on the full selling price, and input tax recovered on the sum invoiced by the principal.

Sales of artworks by unregistered artists can be accounted for under the margin scheme. Using a Margin Scheme allows a trader to account for VAT on the difference between the price paid for an item and the price it sold for. VAT is due on 1/6th of the margin achieved.

You can read more on these matters in Notice 700 The VAT guide and notice 718 The VAT Margin and Global Accounting scheme  at HMRC  via links below https://www.gov.uk/guidance/vat-guide-notice-700#section22 https://www.gov.uk/guidance/the-margin-and-global-accounting-scheme-vat-notice-718#section2

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