This article explains the UK margin scheme and how your Artlogic database will help you to manage and sell Margin Scheme works.
Further Guidance can be found in our Margin Scheme FAQs.
The UK Margin Scheme Explained
The UK Margin Scheme for works of art enables participating dealers and galleries to lower the selling price of eligible artworks through reduced tax.
In this case, the tax remains at the standard 20% rate, but it only applies to the profit (the difference between the cost and retail price), rather than the full retail price. This tax is then added to the retail price as usual to create the Selling price, which is the only amount shown to the customer.
It's worth noting that the scheme has specific rules regarding record keeping for the sourcing and sale of artworks.
If you have questions you can also speak to HMRC directly.
Steps to add Margin Scheme Works to your Artlogic Database
The following guidance explains how to record Artwork Records in your Database that will be sold on the Margin Scheme.
1. Apply a Margin Scheme Tax Status
Margin Scheme Tax Statuses can be assigned to Artwork Records to make sure that the tax settings for artworks comply with UK Margin Scheme regulations. It's important that all artworks eligible for sale under the scheme have this tax status applied.
2. Enter a Cost Price
To use the Margin Scheme Calculator, you must enter a Cost Price. Where you will enter the Cost Price varies based on the artwork's Status.
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For ‘Stock’ items - The cost price is automatically taken from the ‘Total Purchase price (for Margin Scheme)’ field in the Financial tab's ‘Purchase/Stock’ section.
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For ‘On Consignment’ items - The cost price is based on consignment terms.
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- If the consignment is based on a percentage, the cost price is the percentage of the retail price owed to the consignor, plus the gallery's percentage of the total production costs (not the gallery's portion).
- If based on a net value, the cost price is the net amount paid to the consignor, plus the total production costs, minus the consignor’s share.
3. Enter a Selling Price
The Selling Price is the final, tax inclusive price that is displayed in your Artworks Section and on Invoices when the work is sold.
Enter this information above the Selling Price field if you haven't done so already.
4. Use the Margin Scheme Calculator Function
Providing the purchase and additional costs are inserted correctly (for stock items) or your consignment details are set correctly, the powerful Margin Scheme Calculator will show you the following values:
- Retail Price (ex. tax) - This is the Selling Price excluding tax.
- Margin (ex. tax) - This is the Retail Price less the Cost Price, excluding tax, and is the amount that tax will be payable on.
- Tax Payable - This is 20% (the UK tax rate) applied to the margin.
To get started with the Margin Scheme Calculator, simply click Margin Scheme Calculator next to the 'Selling Price' field.
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Once these have been calculated, you can click Update Artwork Data to add these calculations to your Artwork Record.
Sample calculations for Margin Scheme
A work of art that is £1,000 at retail with costs of £500 would have a selling price of £1,100.
- To calculate the Selling Price, add 20% of the Profit to the Retail Price [ (500 x 0.2) + 1,000 = 1,100]
- To find the tax from a Selling Price, calculate one-sixth of the Gross Margin [ (600 x 1) ÷ 6 = 100]
- To get the Retail Price from a Selling Price, calculate five-sixths of the Gross Margin and add this to the cost price [ ((600 x 5) ÷ 6 ) + 500 = 1,000]
Sell your Margin Scheme Works from your Artlogic Database
Steps to create a Margin Scheme Invoice
First, create your invoice.
If you create an invoice from flagged/found records, a Margin Scheme Invoice will be created if all the works have a Margin Scheme tax status. If there are any works in your selection that do not have a Margin Scheme tax status, you will need to invoice any non-Margin Scheme items separately in order to meet the compliance.
If you create the Invoice from your Accounts, you will need to ensure that 'Margin Scheme' is selected as the Invoice Type in your Invoice' settings panel.
How Artlogic Invoices Comply with the UK Margin Scheme
Alongside the restriction on adding non-Margin Scheme artworks to Margin Scheme invoices, the system includes other features to ensure compliance with Margin Scheme sales.
Framing/Extras and Other Costs
If your Margin Scheme work has any Framing/Extras or other costs in the Production Costs section of the Financial tab, you will see a Warning Message on your Invoice edit screen.
In the example below, the Framing/Extras cost has not yet been calculated into the Cost Price field:
By adding 40 GBP to the current value in the Total purchase price (for Margin Scheme)' field, the Cost Price will be updated to include this cost.
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Sundry Items
Your database will prevent you from adding sundry items to Margin Scheme invoices.
You will need to make separate invoices for these items (e.g. crating, packing, shipping).
Miscalculations
When you Generate your Margin Scheme Invoice (Action > Generate Sales Invoice), you will see a warning message pop up if any Margin Scheme calculations do not comply with the guidelines. This can happen if any of the Margin Scheme-related fields (eg cost price) have been updated, but other values were not recalculated using the Margin Scheme calculator.
Click Update Invoice to update the Invoice and Artwork Record with the correct values. You can also use the Margin Scheme Calculator to add discounts to your invoice.
Displaying Tax
Margin Scheme invoices must display the selling price of every artwork and the invoice total must either reflect the selling price of a single artwork or show the combined total of multiple Margin Scheme artworks.