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bigduckontax, Accountant
Category: UK Tax
Satisfied Customers: 4191
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I have a client who is a VAT registered artist. He sells his

Customer Question

I have a client who is a VAT registered artist. He sells his work through a gallery who are also VAT registered and have told us they act as agent, whether this is an disclosed agent or undisclosed agent is unclear as of yet. Although my client does not invoice the client- so I presume undisclosed, possibly incorrectly. The deal with the gallery is that they take a 50% commission + VAT on sales.
So, if he sells a painting for £12,000. my thinking is as the seller he should receive= £10,000 paying HMRC the 20% VAT= £2000. and then the gallery should receive their £5000 + (£1000 VAT which he claims back). In the end both parties end up with £5000 and HMRC £2000. which is preferable to having to pay the gallery £6000 commission plus VAT £1200, which he cannot reclaim.
However, the gallery seems to state now that he is registered that the money is simply split (£6000 and £6000) and the artist and gallery deal with VAT individually. If this is the case does my client only need to pay £1000 to HMRC?
I hope you can help!
Submitted: 2 years ago.
Category: UK Tax
Customer: replied 2 years ago.
Just to add to the confusion. My client receives a 'statement of sales' indicating the outstanding balance to be transferred to him. It is issued with the company's VAT number and states 'commission due on sale' above the amount due to my client, implying he is in fact getting a commission rather than paying the gallery.
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.
I am of the opinion that each of them, the artist and the gallery, should be operating VAT separately. If he sells for 12K then he should issue the gallery an invoice for 10K plus 2K VAT. The gallery will then send him an invoice for 5K plus 1K VAT. The 2K on his invoice is output tax in his books of account and the 1K on the gallery's invoice is input tax. Thus the output tax less the input tax leaves 1K payable by him on his quarterly return. However, if the gallery choses to operate in this manner then the answer in accounting terms is the proverbial lemon and he will still need to pay 1K of VAT to HMMRC. Whichever way the VAT cat jumps he will owe 1K so all is correct. As my old boss was wont to say it doesn't alter the price of cheese.
I do hope that I have been able to shed some light on your client's conundrum.
Customer: replied 2 years ago.
Thanks for your response. I agree that state they are acting as agent the first scenario is what I would have though happens, although for whatever reason this is no how they want to operate. My issue comes with the possibility that if he pays £1000 VAT on the £6000 he receives but the gallery charges him £1200 VAT on their commission of £6000, would he having to be paying £2000 to HMRC and claiming the gross sale price of £12000 as his rather than the net of £6000?
Expert:  bigduckontax replied 2 years ago.
If he receives 6K then slicing out VAT at 20% gives him an output tax of 1K. The gallery imposes an input tax of 1.2K, so what? The difference of 200 quid is recovered through his quarterly return.