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.
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.
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)|
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|
|Less commission deducted by gallery (£300 + VAT of £60)||(360.00)|
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.
VAT specialist, partner, Dodd & Co Accountants, www.doddaccountants.co.uk
First published: a-n.co.uk August 2011
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