VAT rules for artwork and margin scheme
I have been asked by an art gallery client about which items he buys and sells will qualify for the margin scheme, ie where he can account for output tax on the gross profit rather than the selling price.
First, my understanding is that only used items will qualify for any margin scheme, so if a work of art is produced by an artist who is not VAT registered and sold to my client, my client must charge 20% VAT on the onward selling price because it is a ‘new’ work. In other words, the deal is excluded from the margin scheme.
Second, 5% VAT is paid by my client on imported works of art, as long as the customs commodity code for ‘works of art’ is used. Is this correct? Presumably my client cannot use a margin scheme when they sell on these works in the UK because VAT has been paid on the purchase price. So, my client must claim 5% VAT as input tax and then charge 20% VAT on the onward sale. This seems unfair, so is it correct? As a suggestion, if my client used postponed VAT accounting, where no VAT is paid on imported goods, would this make a difference? – Turner.
Delayed entry?
My clients, Jane and Susan (a married couple), ran a very successful garden design business as a partnership, turning over about £150,000 each year. Very sadly, Jane died in a car accident last month. Susan is intending to carry on the business on her own; although there is likely to be some decline in the level of business, annual turnover is still be expected to exceed £100,000.
I’ve been reviewing my client list for making tax digital (MTD). Because this business was a partnership, I didn’t have to consider it before, but now it is a sole trader business it will be within MTD.
My question is, when will it enter MTD? Will it be straight into MTD for 2026-27, because as a sole trader Susan will have exceeded the threshold? Or will the fact that she was previously in a partnership mean that the threshold for mandation is not met until after she has submitted her first tax return as a sole trader showing turnover exceeding £50,000? I assume not, but I can’t find an example anywhere showing how to deal with this situation.
Any advice readers can give will be greatly appreciated. – Optimist.
A,B,C,D,E ...
My client company operates an alphabet share arrangement. The five director/shareholders each hold a separate class of ordinary shares (A, B, etc). They have the same capital and voting rights but none of them carry preferential dividend rights. In practice, the directors pay themselves a small wage and share the profits by way of dividend. They decide between them, based on performance, how much dividend is paid on each share. This works well and is well documented. Eric (who holds the E shares) is in the middle of a divorce. As part of the settlement, he will transfer half of his E share to his spouse.
After the divorce, the company is planning to issue new ‘F’ share to Eric at par. It will then no longer vote any dividends on the E shares and instead will vote them on the F shares, so that Eric will in effect be in exactly the same position as before. I am pleased to say that I don’t have to deal with the legal aspects of this, but I do have to advise on the tax implications. Eric will be taxable on the market value of the shares he subscribes for but in valuing those shares, do dividends have to be taken into account? The F shares are a new class and have no dividend history, but would the prior history of dividends on the E shares somehow have to be taken into account? I haven’t come across this problem before: any thoughts that readers have on the valuation methodology would be welcome. – Dictionary man.
No such thing as a free spa
My client is the managing director and major shareholder of a large private company. She recently won first prize in her golf club’s annual charity raffle. This was an all-expenses paid weekend break for two in a luxury spa.
She doesn’t need another spa break herself, so she is thinking of offering the break as an incentive to the most successful salesperson in her company over the next three months. She has asked me about the tax treatment. On the one hand, it will clearly be a reward connected with the salesperson’s employment and therefore would be taxable. But on the other hand, it hasn’t cost the company anything, so would the measure of the benefit in kind be nil?
What do readers think? Would it be easier if she simply offered the break to her PA as a personal thank you? – Envious.
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