Luxury watches are some of the most sought-after items globally, with a passionate community of collectors investing in high-end timepieces of all shapes and sizes.
Featuring some of the world’s most prestigious and recognisable brands, luxury watches make up a big money industry. Wherever such products are supplied and sold, however, VAT is an inevitable factor.
Do you pay VAT on new luxury watches?
New watches are treated the same way as any luxury item, and VAT is paid at the standard rate of 20% on the sale of these goods. If you are a luxury watch dealer selling new watches, you must charge and account for the standard VAT rate on the full selling price.
VAT on pre-owned luxury watches
Things are a little different when selling pre-owned/second-hand luxury watches. If you are a business selling pre-owned luxury watches, you must still register for VAT if your turnover exceeds the £90,000 threshold. However, the VAT margin scheme may apply to the sales.
The VAT margin scheme enables you to reduce the VAT payable when selling pre-owned luxury watches and other goods on which you were unable to reclaim VAT on the initial purchase. If you sell a second-hand luxury watch for less than your purchase price, you will not have to account for any VAT.
To qualify for the VAT margin scheme, the item must have been purchased in circumstances where VAT cannot be reclaimed, such as from a private seller or from another business selling through the VAT margin scheme.
Your VAT margin is not the same as your profit margin. To figure out the VAT you owe, you need to subtract what you paid for the watch from its selling price. You must not include any extra costs, like repairs or refurbishment, in this calculation.
Luxury watch VAT margin exampleLet’s say you buy a used Rolex Submariner for £13,000 and invest £1000 into repairs and refurbishment before selling it to a customer for £15,000. The margin here is £2,000 (£15,000 second-hand price - £13,000 initial purchase price). Remember, the costs of your repairs and refurbishment are not included. The VAT would be 16.67% of £2,000, or £333.40. Incidental costs charged to the customer, such as postage and packaging, are included in the sale price. |
VAT and importing luxury watches
Extra VAT considerations must be made if you are importing luxury watches for the purpose of retail in the UK. Import VAT is levied on goods brought into the UK from abroad at a standard rate of 20%. This can be reclaimed on your VAT return. The standard 20% rate of VAT is applied to the sale price of the watch when you sell it.
However, if the luxury watch is deemed an antique or collector’s item and imported from the EU, it may be subject to a lower import VAT rate of 5%; however, VAT at 20% will still be chargeable when you sell it later.
Is a luxury watch an antique?
To qualify for the 5% VAT rate on antiques, you will need to be able to demonstrate that the watch satisfies HMRC’s definition. Generally, the watch must be at least 100 years old to qualify as an antique. Documentary evidence, such as certificates of authenticity or a certificate of age from a BADA (British Antiques Dealers’ Association) member, will be required.
Lynne Gill
My area of expertise is land and property transactions but I have extensive knowledge of both domestic and international VAT and I love complex VAT queries. I have an Honours degree in Business Studies and a VAT legal and technical qualification from the Institute of Indirect Taxation.
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