This guide will help with any unanswered questions you may have surrounding the UK Margin Scheme.
You can read about the Margin Scheme, and how it works in the Artlogic Database, in this help note.
FAQS
Which works are eligible to sell on the Margin Scheme?
Eligible works are:
- Artworks subject to import tax (from outside the EU).
- Artworks sold by the creator or their heirs (artists' studios are often VAT registered so may charge VAT).
- Artworks that you have purchased in the UK, providing that you are keeping records in accordance with the scheme. These would not normally have any VAT on them when you bought them unless it was from an artist or their heirs.
Please speak to your local tax office for further guidance on this or visit the gov.uk website.
Why do some people think the Margin Scheme tax rate is 16.66%?
The tax rate for Margin Scheme is 20% as normal.
In the art world, the Retail price is significant if the work is on consignment from an artist as the split of sale proceeds and costs is based upon the Retail price. There is both the need to set an attractive Selling price and also refer to the Retail price.
On the HMRC website, there is an assumption that dealers will ignore Retail price and work out the tax they owe HMRC based on 1/6 (one-sixth) of the difference between the Selling price and the Cost price (i.e. their Gross Margin). To express one-sixth as a decimal is 16.66% which has been mistakenly assumed to be the tax rate.
How should I set this up if the work was purchased in shares?
If you sell the work on behalf of a group of owners, you account for all the VAT in the Margin Scheme as if you owned it all. Then issue statements to the other owners and they invoice you. If you sell a share in a work you own or co-own, this is not eligible for the Scheme and VAT must be charged as normal.
Further reading is available on the gov.uk website.
How can I add a discount to my Margin Scheme Invoice?
To add a discount to the Selling Price, click the Pencil Icon next to the selling price in the Invoice edit window. Then update the Selling Price manually - any other Margin Scheme values will then be recalculated based on your changes. Click Update Invoice to save these changes in the Invoice and Artwork Record.
Should the cost price include the VAT inclusive price that you paid for purchasing works and allowable costs?
Normally, you cannot sell anything on the Margin Scheme if VAT was charged on the invoice. Exceptions to this rule are where you opt to use one of the Margin Schemes for imported works of art, antiques and collectors' items and for works of art obtained from creators or their heirs (see HMRC website - The Margin Schemes in particular circumstances: works of art, antiques and collectors' items on which VAT has been charged).