VAT for non-UK artists and UK exhibition organisers

This post provides an introduction to recent changes in Value Added Tax and VAT registration for both 

• artists living outside the UK who want to exhibit and sell their art in the UK; and 
• those selling art by overseas artists in the UK i.e. the managers of art galleries and art fairs, the Executive Committees of Art Societies and the organisers of Art Competitions.

Unsurprisingly, there are very many people who are not aware of the changes.  Hence this post.

I want to emphasise that if you fall into any of the above categories you need professional advice. I used to be a professional adviser so I know enough to know when something is important but I'm now retired from that part of my life and am emphatically not offering professional advice in this post. Not least because just following the trail of announcements and new publications on the HMRC site is mind-numbing!

Anyway, below I have a go at explaining what the situation is.

View of a past Threadneedle Prize exhibition at the Mall Galleries
This year the Threadneedle hopes to encourage more entries from European artists.

Recent changes in VAT in the UK

If you're an artist intending to exhibit work in the UK - or you are an art society or art competition intending to exhibit and sell artworks by artists not resident in the UK you need to be aware that the rules relating to Value Added Tax have changed

The bottom line is that:

• in order to sell art in the UK, an artist who does not live in the UK and has no recognised and proper business base here must register for UK VAT

• there is no turnover threshold for an artist who does not live in the UK. They must register for VAT if they want to supply one work of art to a body based in the UK

• by implication those selling art on behalf of artists resident outside the UK must include VAT on the sale and provide a VAT receipt to the buyer (This is not a problem if you are making sales via a conventional gallery or a gallery that does art fairs - but this does have major implications for art societies and art competitions)

• The registration for VAT must be EITHER the earliest date that you make taxable supplies (i.e. artwork) here OR you expect to make taxable supplies here within the next 30 days

• in order to sell work by artists not living in the UK a manager of an art gallery or art fair and the organiser of an open exhibition or art competition should ask an international artist to provide a VAT number before their work can be brought into the country

• VAT is charged on art imported into the UK.

As it happens I'm an accountant by profession but I stopped keeping up with the changes in tax law a long time ago! (I'm retired). What I do know is it's never a good idea to get on the wrong side of Customs & Excise when it comes to VAT!

I found out about the changes when I spotted an advice note as part of the notes for artists applying to exhibit at the Summer Exhibition of the Royal Academy of Art.

It looks innocuous - but it's not - see VAT Information (International Artists)(PDF)

I read it through, realised the implications and immediately contacted the Mall Galleries as I know a number of the exhibitions held there have artwork by international artists. I advised them to make sure their tax accountants took a very close look at the recent changes in VAT and how this affects those selling art and artists living outside the UK

As a result their Terms and Conditions for artists submitting work for exhibitions now includes the following (I've emboldened the NEW conditions).

6. SUBMISSIONS

6.1 If you are not normally resident in the UK, you must have a UK VAT registration number before your work(s) can be submitted. You must provide your UK VAT number when you submit.

Artists without a UK residence (known as 'NETPs' - non-established taxable persons) can find further details on 'NETP' status and how to register for VAT at www.hmrc.gov.uk, (HM Revenue & Customs Reference: Notice 700/1, Mar 2014), under the heading 'Should I be registered for VAT?'. Please note, the registration process can take up to 4 weeks. Please address any questions you may have to the VAT Helpline on tel. no. 0845 010 9000 or, if your call is from outside the UK, +44 2920501 261.

HM Revenue & Customs Reference: Notice 700/1, Mar 2014

This is a link to HM Revenue & Customs Reference: Notice 700/1, Mar 2014 otherwise known as  Should I be registered for VAT? (Acrobat PDF, 320KB)

Below I highlight some of the key parts relevant to artists living overseas and trying to sell art in the UK - via art galleries, art society exhibitions and art competitions

That means this is also relevant to the managers of art galleries and art fairs, the Executive Committees of Art Societies and the organisers of Art Competitions.

So what does this mean?

1.2 What’s changed?
We have made changes to the April 2010 edition to reflect:

• the introduction of a new online system for registering for VAT

• the removal of the VAT registration threshold for non-established taxable persons

The removal of the VAT threshold relates to a court case. The result of this means that only businesses established in a Member State can benefit from its domestic VAT registration threshold. Everybody else doing business in taxable supplies must register for VAT.

So what's a "non-established taxable person" aka NETP?

In layman's terms - in relation to art - this is an artist who lives abroad, who does not have a place of business in the UK and who sells their artwork (i.e. taxable supplies) in the UK from time to time.

The important point is that all artists living outside the UK who don't have a base here and who are selling art in the UK in 2014 should have registered for VAT before they made the supplies.

Here's the definition according to DMBM530120 - Debt and return pursuit: VAT: liability for payment: Non-Established Taxable Persons (NETPs)

Definition of NETP

A non-established taxable person who is:

• not normally resident in the UK
• does not have a place of business in the UK
• is not incorporated under UK law but,

• makes taxable supplies in the UK

NETPs may register for VAT in any of the following ways

• directly with Aberdeen (050 traders)
• via a UK tax representative or,
• via a UK agent.

The new VAT regulations have a whole section devoted to it (section 9)

9. Non-established taxable persons (NETPs): basic information

9.1 What is an NETP?

An NETP is any person who is not normally resident in the UK, does not have a UK establishment and, in the case of a company, is not incorporated here.

9.2 What is a UK establishment?

A UK establishment exists if:

• the place where essential management decisions are made and the business’s central administration is carried out is in the UK

and/or

• the business has a permanent physical presence with the human and technical resources to make or receive taxable supplies in the UK

We would normally consider a company which is incorporated in the UK to have an establishment here as long as it is able to receive business supplies at its registered office.

9.3 When must an NETP register for VAT in the UK?

From 1 December 2012, if you make any taxable supplies (see paragraph 2.3) in the UK, you must register for VAT here, and account for any UK VAT to HMRC.

What the new Regulations state (my bold caps) is that

If

• you are a non-established taxable person (see section 9), and
• you make any taxable supplies in the UK

you MUST register for VAT

In other words, if you want to exhibit one work of art in the UK but don't live here, you MUST register for VAT.

The removal of the threshold is very important.  In effect it creates an uncompetitive situation between artists based in the UK and those who are based outside the UK. There is no free movement of goods which appears to be contrary to what the EU is about with the free market for EU countries. So there's going to be some lobbying on this issue and when that happens I'll raise this again on this blog.

[For artists living in the UK:

• Your VAT taxable turnover is the total of sales and certain other supplies you make that are subject to VAT, including supplies that are zero-rated. If you sell goods or services that are exempt from VAT they're not subject to VAT and so they're not part of your VAT taxable turnover.
• the threshold for the value of the taxable supplies is now GBP81,000. When supplies exceed this figure in the previous 12 months, an artist must register for VAT. ]

When to register to UK VAT

This webpage explains When to register for UK VAT. It covers

• Who can and can't register for VAT
• You're doing business in the UK, or intend to start
• You supply goods to the UK from abroad, or intend to start
• You supply goods or services from the UK to other countries
• Voluntary registration
• Calculating your VAT taxable turnover
• Do not avoid registering for VAT by artificially separating business activities
• More useful links

Interestingly this guidance appears to suggest that registration for VAT is optional - but ONLY if you are supplying to customers who aren't registered for VAT and don't have to be registered for VAT.

You supply goods to the UK from abroad, or intend to start

You may need to register for VAT, or you may be able to choose to register voluntarily, if you are doing any of the following kinds of business in the UK:

• Supplying and delivering goods from another EU country to non VAT-registered customers in the UK. If you sell and deliver goods (or arrange for their delivery) from another EU country to customers in the UK who aren't registered for VAT and don't have to be registered, this is known as distance selling. Common examples are mail order and Internet sales. If the value of your distance sales in the calendar year from 1 January goes over the distance selling threshold, currently £70,000, you must register for UK VAT. You can also register voluntarily, if you are trading below the threshold or you intend to start trading.

Finally - the most helpful and clearest guidance came in Revenue & Customs Brief 31/12 Removal of the VAT registration threshold for businesses which are not established in the UK
This states

If you don't live in the UK or your place of business isn't in the UK

From 1 December 2012, if you don't have a business or fixed establishment here, the UK VAT registration threshold will no longer apply to you.

Your registration date will be the earliest date that

• you make taxable supplies here
• you expect to make taxable supplies here within the next 30 days

You must register as a Non-Established Taxable Person (NETP). If you're doing this by post, you can download the application form VAT 1.

Get form VAT 1 to register as a NETP

If you know that you will have to register for VAT in the UK when the rules change, you may want to register in advance. You do this by applying for registration in the usual way but requesting a later registration date. You will be registered for VAT from your chosen date if HMRC receive your request within three months of that date. For example, if you know you will be liable to register from 1 December 2012, HMRC will register you with effect from that date if they receive your request on or after 2 September.

Find out more about registering for VAT if you don't have a place of business in the UK

Read more about the VAT registration threshold for NETPs in Revenue & Customs Brief 31/12 

So there you go. It's about as clear as mud - but it does matter and those likely to be affected really do need to get proper professional advice as to their best course of action.

Do be aware that if you register for VAT you then need to complete their VAT forms - which means you then need to meticulous with your paperwork and accounting records!

PS I'm still unclear exactly what the implications are for art societies or other organisations selling art for an international artist - but I'm trying to find out.  I suspect the answer rather depends on the nature of the contractual relationship and what your terms and conditions say.