Vat or No Vat?
Discussion
I have a new internet business going live pretty soon. Basically we are selling art on behalf of artists. Many of these artists are not VAT registered and neither are we for this side of the business.
The purchaser will buy art through the website, where we will collect full payment from them. We will then deduct our commission and pass the balance to the artist. We will hold no stock. The artist sends their artwork directly to the purchaser.
As full payment is collected by us I assume this will be regarded as turnover. If we go over the vat threshold do we have to add VAT to the art prices or not? Obviously we would rather not have to do this to keep prices low.
Que Eric.
The purchaser will buy art through the website, where we will collect full payment from them. We will then deduct our commission and pass the balance to the artist. We will hold no stock. The artist sends their artwork directly to the purchaser.
As full payment is collected by us I assume this will be regarded as turnover. If we go over the vat threshold do we have to add VAT to the art prices or not? Obviously we would rather not have to do this to keep prices low.
Que Eric.
This can be quite tricky.
The question is, if you are handling someone else's money by passing it through your business before passing it on to an eventual reipient does that money count as part of your turnover?
The answer is "not necessarilly".
If you are acting as an agent or broker, your "turnover" is really the commission you charge for finding buyers for your clients.
If you can convince yourself that you are an agency rather than a buyer and seller, you may be able to escape the clutches of the VAT man.
The question is, if you are handling someone else's money by passing it through your business before passing it on to an eventual reipient does that money count as part of your turnover?
The answer is "not necessarilly".
If you are acting as an agent or broker, your "turnover" is really the commission you charge for finding buyers for your clients.
If you can convince yourself that you are an agency rather than a buyer and seller, you may be able to escape the clutches of the VAT man.
Thanks Eric. My girlfriend is a HMRC officer (VAT) and dad is a FCA FCCA so I will run it past them too. I agree with you that my turnover is really only the commission paid and therefore I should only charge VAT if that commission reaches the threshold. For that to happen I would be selling approx £650,000 of art PA which is unlikely.
Just ran it past the GF. She said If I dont actually take ownership of the goods then they are not part of my turnover, IE my turnover is my commission. Assuming I only invoice the Artist for commission not the purchaser. Its therefore down to the artist to issue an invoice to the customer for the gross amount. This will be written in our terms and conditions, and its up to the artists to comply with this. So Eric my friend you were right as usual. Cheers.
Edited by jamesuk28 on Saturday 28th April 21:59
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