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As many in the trade will know, current rules allow dealers and galleries to temporarily remove (for up to 90 days) artworks from bonded warehouses to show at a gallery or fair, without incurring the liability to pay import VAT and Customs duty, provided the works are not sold during that period.

However, from June 30, any works imported for display at a fair, gallery and auction house with a view to sale, must enter the UK under Temporary Admission, or they must be removed from Customs Warehousing to Temporary Admission.

Those who do not obtain full authorisation via TA face having to put up security for the full amount of import VAT (and Customs duty if applicable) if they then want to remove works temporarily under the scheme.

"Temporary Admission (TA) is a specific VAT importation regime," says Pierre Valentin, partner and art law specialist at Constantine Cannon, who has highlighted the issue in his new blog, Art@Law. "The difficulty with TA is that it requires the importer to provide security to HMRC to cover the import VAT liability that may become due if the TA procedure is not correctly discharged. Inevitably, providing security has an impact on cash flow and can severely undermine smaller businesses."

Delayed Introduction

HMRC had planned to bring the changes in earlier, but Mark Dodgson, Secretary General of the British Antique Dealers' Association, and Christopher Battiscombe, Director General of the Society of London Art Dealers, persuaded the department to delay introduction until June 30 to prevent issues arising around the summer fairs in London.

"Convincing Customs they should move the date to the end of the month was important because it meant that, provided a dealer with a customs warehouse applies under the current rules for temporary removals no later than June 29, we have assurances from HMRC that they will not come under the new, more restrictive system," Mr Dodgson told ATG.

"The deadline applies to the date they are removed, so in the case of events such as London Art Week and Masterpiece, provided dealers comply with all the other rules about the length of time goods can be taken out of the warehouse, the fact that the items remain outside the warehouseafterJune 29 should not be a problem, provided they left it before that date."

The good news, says Mr Valentin, is that HMRC recognise the serious impact the changes could have on art firms and have announced that they will offer a full guarantee waiver in respect of import VAT to art businesses holding a full TA authorisation. However authorisation is not automatic.

"Before a full TA authorisation is issued, the art business must show:

• a good compliance record;

• it meets the financial solvency criteria;

• it can demonstrate a good record-keeping history; and

• it has systems in place to identify and correct any errors found."

He also explained that while some dealers and galleries hold a simplified TA authorisation, this will not be enough if they do not want to be forced to put up security.

"They should apply to HMRC (Authorisations and Returns Team) for a full TA authorisation."

And even those who do hold full TA authorisation should apply to the HMRC's Authorisations and Returns Team to obtain approval to use it without putting up security, he said.

"In other words, the fact that you hold a full TA authorisation does not mean that you automatically benefit from the full guarantee waiver."

The new rules also change the circumstances under which artworks can be temporarily removed from a Customs Warehouse.

Mr Valentin advises that from June 30, this will only be allowed if:

• the temporary removal is solely for the purpose of viewing in a venue other than one qualifying as private premises or allowing public access - HMRC are likely to interpret this "for viewing" exception restrictively;

• the artworks are first moved to TA (and security is given unless authorised by HMRC) or another approved VAT regime;

• the artworks are removed to free circulation, and import VAT is paid; or

• the artworks are re-exported.

Meanwhile, Mr Dodgson said that HMRC recognised that each dealer's circumstances will vary.

Dealers only removing art to show at  European fairs may feel there is no need to apply for the full TA authorisation status, he said.

In addition, if most removals involve re-exports, without the need to show objects to potential clients in the UK, they should be unaffected by the changes and probably do not need to apply for full TA authorisation. However, if they regularly exhibit at UK art and antiques fairs or wish to remove works from their warehouse to show to potential customers, the changes will affect them.

"I understand from Revenue and Customs that there are still a number of dealers with a customs warehouse who have not applied for full TA authorisation," Mr Dodgson told ATG.

"If, having considered their options, they decide to apply for full TA authorisation, I strongly urge them to complete form C&E 1331 and submit it to Leeds as soon as possible. Members have already been granted the status fairly promptly and I am not aware of major problems with their applications."