Auction house owes VAT on both commission and buyer's premium

Where an auction house charges the seller commission and the buyer a premium, together they make up the profit margin on which VAT is due. The Supreme Court provides clarity.

The auction rules

Where goods are auctioned by an auction house, ownership passes directly from the seller to the buyer. Under the auction rules, however, VAT treats two supplies as taking place: the seller is deemed to supply the auction house, and the auction house is deemed to supply the buyer.

The margin scheme

Where second-hand goods or works of art and collectors' items are traded, a reseller can apply the margin scheme. It then accounts for VAT not on the whole amount received from the buyer but only on its profit margin: the difference between the selling price and the purchase price. The VAT is treated as included in that margin.

The margin at auction

Where second-hand goods or works of art and collectors' items are sold at auction, both the auction rules and the margin scheme can apply. The auction house is then the reseller: it notionally buys the goods from the seller and notionally supplies them on to the buyer. The margin is the difference between that notional purchase price and the selling price.

What if the auction house charges the seller commission and the buyer a premium? The Supreme Court held that VAT is due on both. Together they make up the profit margin: their sum equals the difference between what the buyer pays and what the seller ultimately receives.

Example. The buyer pays € 115 and the seller ultimately receives € 80. The auction house's margin is therefore € 35, the same as the € 20 commission and the € 15 premium combined. The VAT is included in that margin, so the auction house owes € 6 in VAT (21/121 × 35).

Finally

With this judgment the Supreme Court clarifies the VAT treatment of commission and buyer's premium. Not every uncertainty is resolved. The Court rightly observes that an auctioneer can also supply separate services to the seller. Whether it does, and which payments relate to those services, has to be assessed case by case.