VAT and luxury watches – new and second-hand

Luxury watches are some of the most sought-after items globally, with a community of passionate 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 which should be not be ignored.

Do you pay VAT on new luxury watches?

New watches are treated the same way as any luxury item, and VAT is charged 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, you may be able to use the VAT margin scheme to account for VAT on your sales of pre-owned watches.

The VAT margin scheme enables you to only account for VAT on your profit 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 calculate 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.

The VAT margin is treated as VAT-inclusive, and VAT is accounted for by multiplying the margin by one sixth.

VAT and importing luxury watches

There are other VAT considerations to be taken into account when importing luxury watches for the purpose of retail sale 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 subject to the normal rules.. The standard 20% rate of VAT is applied to the sale price of the watch when you sell it. Imported watches cannot be sold using the second hand margin scheme because import VAT is payable on import.

If the luxury watch is deemed an antique or collector’s item and imported into Great Britain from a country outside the UK it may be subject to a lower import VAT rate of 5%; however, VAT at 20% will still be chargeable when it is later sold..

Antiques imported into Northern Ireland only qualify for the reduced VAT rate of 5% if the items have been purchased from sellers outside both the UK and the EU.

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 of an antique. 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.

Is it time that you reviewed your VAT?

If you’re unsure whether your luxury watch sales are being reported correctly for VAT, Shorts’ VAT team can help. We're happy to have a consultation to ensure you’re making full and accurate use of VAT schemes. With clear advice and practical support, we make VAT compliance simpler and more efficient for your business.