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How to deal with VAT on sales
When selling work through a gallery, how does an artist deal with VAT on sales commission? VAT specialist Faye Armstrong explains.
Introduction
There are several different types of way that this type of arrangement can work for tax. The most common is for the gallery to act as your agent - that is they sell the work on your behalf rather than buying it from you and then selling it on. The best way to think of this type of agency arrangement is as two separate transactions:
1. You have a sale of your artwork to the end collector, and
2. You pay the gallery commission for their services of selling the work.
Although the income from the sale to the collector and the cost of the commission are netted off each other when the gallery pays you, really this is just for convenience and the two things are treated separately for tax and VAT.
Example
It helps to illustrate with some numbers, so let's assume that you have some artwork on sale for £1,200 and the gallery charges commission of £360. Your sale is for the full £1,200, but you could send an invoice to the gallery showing something like:
| £ | |
| Sale of artwork | 1,200.00 |
| Less commission deducted by you | (360.00) |
| Balance due | 840.00 |
Once you are VAT registered, you will still have two transactions for tax and VAT purposes, but it is even more important to get things right to make sure that you charge the correct amount of VAT.
If the artwork was on sale for £1,200, you would have a sale of £1,000 + VAT of £200. You would have a cost (or expense) of £300 + £60, being the gallery's commission. You could show this as a deduction from the selling price on your invoice like this:
| £ | |
| Sale of artwork | 1,000.00 |
| Add VAT at 20% | 200.00 |
| Gross sale | 1,200.00 |
| Less commission deducted by gallery (£300 + VAT of £60) | (360.00) |
| Balance due | 840.00 |
You will then pay the £200 of VAT you charged on your sale to the VAT man and reclaim from him the £60 of VAT which the gallery charged you.
It really helps with this type of transaction to think of the sale of the artwork to the collector, and the commission you pay to the gallery as two separate transactions even if they are "settled up" by netting the two off against each other. In particular, if the collector is VAT registered, you will need to send them the invoice showing the £200 of VAT so that they can reclaim the VAT on their VAT return.
Faye Armstrong
VAT specialist, partner, Dodd & Co Accountants, www.doddaccountants.co.uk
First published: a-n.co.uk August 2011
Back to topComments on this article
As an artist selling through well over 20 galleries in the UK in the past 10 years I have never come across Faye Armstrongs way of doing VAT. Not in the time that I was registered or in the time I was not registered for vat. All my galleries have taken full control rightly or wrongly with honesty and not such honesty of invoicing and vat.When vat registered I have invoiced the gallery for my trade price plus vat.When not registered than I invoice just my trade price.Sadly when I was not registered all these galleries have charged the buyer the full vat on my work rather than just the commission they have taken. The buyer has therefore paid twice as much vat than they should do and either the gallery has pocketed the difference or the vat man has gained. On my paintings that retail from £1750 this amounts to £150.
posted on 2011-08-23 by PENNY WARDEN
We asked Faye Armstrong to respond to Maurice Blik's comment: It is important to distinguish between two types of arrangement: Where the gallery buys the artwork from the artist and then sells it on, it is acting as a principal (ie the buyer is considered to be buying the art from the gallery, not the artist). In this situation, I agree that the course of action Maurice explains below is very sensible. The artist sells to the gallery, and the gallery then sells on to the collector. However, when a gallery acts as an agent – ie the buyer is considered to be buying from the artist - then the artist will have to raise their own invoice to the buyer for the full selling price, as I explained above. The £60 of VAT on the commission could not be reclaimed twice, as only the artist could reclaim this VAT. Also, the amount that the artist receives from the gallery need not be disclosed to the buyer, as the only invoice the buyer would need to see is that for the £1,000 + £200 of VAT = £1,200 (ie an invoice for the amount of money which they pay when buying the work). Either type of arrangement is possible, but each has different VAT and tax consequences, and so the nature of the arrangement should be clarified with each gallery.
posted on 2011-08-22 by a-n Editorial
Most galleries will not want the artist contacting the buyer, nor rely on the artist being available to invoice the buyer. It only works efficiently if the gallery does the invoice on the artist's behalf. Either way the artist's price is revealed to the buyer and is not something that many galleries would welcome. In this example, where the buyer can reclaim vat it can only be on the artist's price not the full amount paid, otherwise the £60. vat due on the commission would be reclaimed twice. If the artwork price is £1200. then once the artist is vat registered it should be £1200.+vat [£1440] otherwise the total due to the artist will be less the vat due. This is not stated or made clear in the advice given. A far better situation is where the gallery buys the work from the artist, albeit at the point where the gallery sell it, the gallery can then claim the vat back, which gives them a 20% margin and more negotiating room. The buyer can then claim all the vat back on the full retail price, making it more attractive. That way the gallery has full control of invoicing etc and no need to involve the artist in the transaction. Maurice Blik
posted on 2011-08-21 by Maurice Blik
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I agree with Maurice Bilk and Penny Warden. The galleries I deal with ask me what is my price to the gallery, not what is my price to the public, and that is what they pay me if they sell my work. I don't know what price the work is sold for and don't know what commission has been charged. I invoice the gallery for the price they pay me, and charge VAT on that.
posted on 2012-07-18 by Marshall Colman