Q&A: VAT on agent’s fees

Croner VIP Tax Team

In this week’s Q&A, Danni Walker, tax adviser at Croner VIP Tax Team, explains invoicing rules and VAT liability when selling for a client as an agent and splitting sale price.

Q: My client is an art gallery selling artwork on behalf of an artist. The gallery will retain 50% of the sale proceeds. Should the gallery charge VAT on this 50% retained?

A: The first point to establish here is whether the gallery is acting as a ‘disclosed’ or ‘undisclosed’ agent (ie, acting in their own name’).

A disclosed agent is one where the consumer, who will be buying the artwork, is aware that the artwork is being sold by a third party (ie, the artist).

An ‘undisclosed agent’ is where the consumer is unaware of the third party involved and, as far as the consumer is aware, they are purchasing the goods directly from the gallery (who will be ‘acting in their own name’ – this is discussed in https://library.croneri.co.uk/cch_uk/etc/71910

There are different invoicing rules applicable depending on the circumstances of the particular transactions.

Essentially, if the gallery is acting as a disclosed agent, the artist, if VAT registered, will be liable to account for any applicable VAT on the sale of the artwork directly to the consumer.

In this situation the income that the gallery retains is purely for their agency services and will be subject to UK VAT (depending on the deemed place of supply).

If the gallery is acting as an undisclosed agent, it is effectively seen that the gallery is the seller of the artwork and is ‘acting in their own name’.  In this case there is a deemed purchase of the artwork by the gallery, from the artist, and then an onward sale of the artwork by the gallery to the end consumer.

The gallery must account for VAT on the full selling price of the artwork (unless the artwork is eligible to be sold under a margin scheme).

The gallery must then also charge VAT on their 50% commission which is retained for their agency services (depending on the deemed place of supply).

If the artist is VAT registered, they should charge VAT to the gallery on the deemed supply, which the gallery can then recover as input tax, leaving the gallery at this point in a ‘nil net’ position.

As shown, care needs to be taken when considering individual sales.