Auctions and Value Added Tax (VAT)

VAT Code Definitions (Sales Tax)

Each lot has a VAT code letter which defines how the lot is to be treated for VAT. The meanings of these codes are shown in the table below:

Auctioneers Margin Scheme Lots
M

Standard rate item. Lot not liable for VAT on bid (hammer) price. VAT on vendor commission/buyers premium @ 15% included within vendor commission/buyers premium and not shown separately.

N

Zero rate item. Lot not liable for VAT on bid (hammer) price, vendor commission or buyers premium.

Lot Subject to Normal VAT Rules

Unless otherwise stated VAT on charges, vendor commission and buyers premium is at the standard rate (15%).

V Standard rate item. VAT @ 15% added to bid (hammer) price. VAT on vendor commission/buyers premium @ 15% shown separately.
I Standard rate item. VAT @ 15% included in bid (hammer) price. VAT on bid price element shown in ( ). VAT on vendor commission/buyers premium @ 15% shown separately.
W

Reduced rate item. VAT @ 5% added to bid (hammer) price. VAT on vendor commission @ 0%. VAT on buyers premium @ 15% shown separately.

J Reduced rate item. VAT @ 5% included in bid (hammer) price. VAT on bid price element shown in ( ). VAT on vendor commission @ 0%. VAT on buyers premium @ 15% shown separately.
Z

Zero rate item. Not liable for VAT on bid (hammer) price. Not liable for VAT on vendor commission. VAT on buyers premium always payable @ 15% and shown separately and cannot be refunded to non-EU buyers.

Notes for Buyers - A Summary

Items to be sold at auction within the United Kingdom (UK) and European Union (EU) can be offered under the auctioneers margin scheme or under normal Value Added Tax (VAT) rules.

For full details of the auctioneers margin scheme please refer to VAT notice 718. Normal VAT rules are detailed in VAT notice 700. Both documents can be obtained from Her Majesty's Revenue and Customs (HMRC) at www.hmrc.gov.uk/VAT/index.htm 

Normal VAT Rules

VAT accounting is mandatory for VAT registered businesses in the UK and EU. VAT (Sales Tax) is added to the price of the goods at either 15% or 5% according to the goods classification. VAT registered businesses can reclaim VAT paid by them on purchases. The difference between VAT collected on sales and VAT paid on purchases is sent to HMRC.

Most commercial auctioneers (i.e. those involved in disposal of commercial assets by reason of business mergers, administrations, liquidations, disposals etc.) sell under normal VAT rules. This is principally because the auctioneers margin scheme cannot be used where the goods have had VAT on their purchase reclaimed from HMRC - as will almost always be the case when auctioning goods previously bought by VAT registered businesses.

Lots subject to normal VAT rules are marked in the printed auction catalogue with an asterisk (*) or a single dagger symbol (†) to indicate a VAT rate of 15%.

Lots subject to normal VAT rules are marked in the printed auction catalogue with a double asterisk (**) or a double dagger symbol (‡) to indicate a VAT rate of 5%.

Lots subject to a 5% rate are usually lots being sold under temporary importation rules where the import duty has been deferred until the point of sale and is to be paid by the buyer.

Please note that VAT on auctioneers commission and charges is always at the 15% rate even if the good are subject to temporary importation at the 5% VAT rate.

A buyers invoice will show the hammer price (bid price) of the lots bought. VAT is added to the hammer price. The buyer must also pay the auctioneers commission in the form of a buyers premium, plus VAT on the buyers premium at 15%. Any charges (e.g. delivery, packaging....) will also be subject to VAT at 15%.

VAT registered businesses are able to recover VAT on lots purchased at auction but HMRC have decreed that VAT on buyers premium is always payable whether the buyer is domiciled in the UK, the EU or outside the EU or wherever the goods are to be sent. So auctioneers cannot refund VAT on buyers premium if the goods are sold under normal VAT rules.

Some auctioneers choose to sell VAT Inclusive. This means that the hammer price achieved at auction already includes VAT at the appropriate rate. The true hammer price can be found by dividing the VAT inclusive price by either 1.15 or 1.05 as appropriate. VAT on hammer price, VAT on buyers premium and VAT on charges will then all be based on the true hammer price. VAT inclusive lots will be clearly marked in the catalogue.

Some classes of goods are either exempt or zero-rated for VAT and so there will be no VAT added to the hammer price for these goods.

VAT is always calculated on a lot-by-lot basis. VAT totals on a buyer’s invoice may show small rounding discrepancies. For example, if buyers premium were quoted at 20% inclusive of VAT, the actual buyers premium rate would be 17.391304% plus VAT at 15%. Since currencies cannot have fractions of a penny or cents, rounding discrepancies will accumulate and cannot be avoided.

 Auctioneers Margin Scheme

Most auctioneers specialising in art, antiques, ceramics, jewellery, silver, household goods, etc. - where VAT on the purchase was originally paid by, but not reclaimed by, the end user/buyer - choose to sell under the auctioneers margin scheme. The scheme is detailed in VAT notice 718, principally for disposal of non-commercial second-hand items, but in summary:

VAT is not payable on the goods hammer (bid) price.

Buyers premium and VAT on buyers premium are combined and shown as one total - VAT on buyers premium is not shown separately and cannot be reclaimed by UK or EU VAT registered businesses or individuals.

Charges and VAT on charges are shown separately. VAT on charges can be reclaimed by VAT registered UK and VAT registered EU businesses or VAT registered individuals.

If a VAT registered UK or EU buyer wishes to reclaim VAT on purchases they can ask the auctioneer for a VAT Invoice. This takes the relevant lots out of the auctioneers margin scheme and treats them all under normal VAT rules. The buyer will need to pay VAT on the hammer price of the goods. Buyers premium and VAT on buyers premium will be shown separately and VAT on buyers premium and VAT on charges can be reclaimed. A buyer cannot cherry pick which parts of the schemes they would want to utilise. For example, auctioneers margin scheme goods cannot have VAT on buyers premium refunded unless VAT on hammer price is also paid to the auctioneers.

Non UK or EU VAT registered buyers can have all classes of VAT refunded on their purchases - please note that auctioneers are under no obligation to provide VAT refunds, although many will provide this service. HMRC are the ultimate refunding authority. VAT refunds are subject to provision of statuary export/import documentation.

VAT is always calculated on a lot-by-lot basis. VAT totals on a buyer’s invoice may show small rounding discrepancies. For example, if buyers premium were quoted at 20% inclusive of VAT, the actual buyers premium rate would be 17.391304% plus VAT at 15%. Since currencies cannot have fractions of a penny or cents, rounding discrepancies will accumulate and cannot be avoided.

Disclaimer

This note is an attempt to provide auction buyers with a concise statement of VAT law. The information is provided in good faith but no warranties are given. Our advice is that buyers should raise queries with a local VAT office.

Revised 5th December 2008