Items to be sold at auction within the United
Kingdom (UK) and European Union (EU) can be offered under the
Auctioneers' Margin Scheme or
under normal Value Added Tax (VAT) rules. VAT is potentially
payable on the bid (hammer) price of the goods, on the
auctioneer's commission in the form of a buyer's premium and on
any charges relating to the goods (import, valuation,
collection, storage, packaging, delivery etc.).
For full details of the Auctioneers' Margin Scheme
please refer to VAT notice 718. Normal VAT rules are detailed in
VAT notice 700. Both documents can be obtained from Her
Majesty's Revenue and Customs (HMRC) at
www.hmrc.gov.uk/VAT/index.htm
VAT Code
Definitions (Sales Tax)
Each lot has a VAT code letter
which defines how the lot is to be treated for VAT. The meanings
of these codes are shown in the table below:
Auctioneers'
Margin Scheme Lots
M
Standard rate item.
Lot not liable for VAT on bid (hammer) price. VAT on buyer's premium
at
17.5% included within buyer's
premium and not shown separately.
N
Zero rate item. Lot
not liable for VAT on bid (hammer) price.
Lot liable for VAT on buyer's premium at 0%.
Lots Subject to Normal
VAT Rules
Unless otherwise
stated VAT on charges and buyer's
premium is at the standard rate (17.5%).
V
Standard rate item. VAT at 17.5%
added to bid (hammer) price. VAT on
buyer's premium at 17.5% shown separately.
I
Standard rate item. VAT
at 17.5%
included in bid
(hammer) price. VAT included in bid
price shown between ( ). VAT on buyer's
premium at 17.5% shown separately. Shown as
Nil or
Inc in on line catalogue.
W
Reduced rate item.
VAT at 5% added to bid (hammer) price. VAT on buyer's premium
at 17.5% shown
separately.
J
Reduced rate item. VAT at 5%
included in bid
(hammer) price. VAT included in bid
price shown between ( ). VAT on
buyer's
premium at 17.5% shown
separately. Shown as
Nil or
Inc in on line
catalogue.
Z
Zero rate item.
Lot liable for VAT on bid (hammer) price at 0%.
VAT on buyer's premium at 17.5% shown
separately.
Normal VAT Rules
VAT accounting is mandatory for VAT registered
businesses in the UK and EU. VAT (Sales Tax) is added to the price of
the goods at either 17.5% or 5% according to the goods
classification. VAT registered businesses can reclaim VAT paid
by them on purchases. The difference between VAT collected on
sales and VAT paid on purchases is sent to HMRC.
Most commercial
auctioneers (i.e. those involved in disposal of commercial
assets by reason of business mergers, administrations,
liquidations, disposals etc.) sell under normal VAT rules. This
is principally because the Auctioneers' Margin Scheme cannot be
used where the goods have had VAT on their purchase reclaimed
from HMRC - as will almost always be the case when auctioning
goods previously bought by VAT registered businesses.
Lots subject to normal VAT rules are marked in
the printed auction catalogue with a single asterisk character
(*) or a single dagger symbol (†) to
indicate a VAT added rate of 17.5%.
Lots subject to normal VAT rules are marked in
the printed auction catalogue with a single 'at' character (@) to
indicate a VAT inclusive rate of 17.5%.
Lots subject to normal VAT rules are marked in
the printed auction catalogue with double asterisk characters
(**) or a double dagger symbol (‡) to indicate a VAT added rate of 5%.
Lots subject to normal VAT rules are marked in
the printed auction catalogue with double 'at' characters (@@) to
indicate a VAT inclusive rate of 5%.
Lots subject to the 5% rate are often lots being
sold under HMRC temporary importation rules where the import duty has
been deferred until the point of sale and is to be paid by the
buyer. However, some classes of goods do attract VAT at the
reduced rate.
Please note that VAT on auctioneer's commission
and charges is always at the 17.5% rate even if the goods are
subject to the 5% VAT rate.
A buyer's invoice will show the bid (hammer)
price of the lots bought. VAT is added to the hammer
price. The buyer must also pay the auctioneer's commission in the
form of a buyer's premium, plus VAT on the buyer's premium at
17.5%. Any charges (e.g. delivery, packaging....) will also be
subject to VAT at 17.5%.
Some auctioneers choose to sell VAT Inclusive. This means
that the bid (hammer) price achieved at auction already includes VAT
at the appropriate rate. The true hammer price can be found by
dividing the VAT inclusive price by either 1.175 or 1.05 as
appropriate. VAT on hammer price, VAT on buyer's premium and VAT
on charges will then all be based on the true hammer price. VAT
inclusive lots will be marked as Inc
or Nil in the
on line catalogue.
Some classes of goods are either exempt or
zero-rated for VAT and so there will be no VAT added to the
hammer price for these goods.
Non UK or EU VAT registered buyers can have most
classes of VAT refunded on their purchases - please note that
auctioneers are under no obligation to provide VAT
refunds, although many will offer this service. HMRC are the
ultimate refunding authority. VAT refunds are subject to
provision of statutory export/import documentation. HMRC
have decreed that VAT on buyer's premium is always payable
whether the buyer is domiciled in the UK, the EU or outside the
EU or wherever the goods are to be sent. So
auctioneers cannot refund VAT on buyer's premium if the goods are
sold under normal VAT rules.
VAT is always calculated on a lot-by-lot basis. VAT totals on a buyer’s invoice may show small
rounding discrepancies. For example, if buyer's premium was quoted at 20% inclusive of VAT, the actual buyer's premium rate
would be 17.391304% plus VAT at 17.5%. Since currencies cannot
have fractions of a penny or cents, rounding discrepancies will
accumulate and cannot be avoided.
Auctioneers'
Margin Scheme
Most auctioneers specialising in fine art and
chattels - where VAT on the goods was originally paid
but not reclaimed - choose to sell under the Auctioneers' Margin
Scheme. The scheme is detailed in VAT notice 718, principally
for disposal of non-commercial second-hand items, but in
summary:
VAT is not payable on the bid (hammer) price.
Buyer's premium and VAT on
buyer's premium are
combined and shown as one total - VAT on buyer's premium is not
shown separately and cannot be reclaimed by UK or EU VAT
registered businesses or individuals.
Charges and VAT on charges are shown separately. VAT on charges can be reclaimed by VAT registered UK and VAT
registered EU businesses or VAT registered individuals.
If a VAT registered UK or EU buyer wishes to
reclaim VAT on purchases they can ask the auctioneer for a VAT
invoice. This takes the relevant lots out of the
Auctioneers' Margin Scheme and treats them all under normal VAT
rules. The buyer will need to pay VAT on the hammer price
of the goods. Buyer's premium and VAT on buyer's premium
will be shown separately and VAT on buyer's premium and VAT on
charges can be reclaimed. A buyer cannot cherry pick which
parts of the schemes they would want to utilise. For
example, Auctioneers' Margin Scheme goods cannot have VAT on
buyer's premium shown separately unless
VAT on hammer price is also paid to the auctioneers.
Non UK or EU VAT registered buyers can have all
classes of VAT refunded on their purchases - please note that
auctioneers are under no obligation to provide VAT
refunds, although many will offer this service. HMRC are the
ultimate refunding authority. VAT refunds are subject to
provision of statutory export/import documentation.
VAT is always calculated on a lot-by-lot basis. VAT totals on a buyer’s invoice may show small
rounding discrepancies. For example, if buyer's premium were
quoted at 20% inclusive of VAT, the actual buyer's premium rate
would be 17.021276% plus VAT at 17.5%. Since currencies cannot
have fractions of a penny or cents, rounding discrepancies will
accumulate and cannot be avoided.
Disclaimer
This note is an attempt to provide auction buyers
with a summary of VAT law. The information is supplied
in good faith but no warranties are given. Our advice is that
buyers should raise queries with a local VAT office.