There is always something nasty buried in the small print.
In the case of the free trade agreement signed by Britain and the European Union last year, businesses trading in second hand goods are being hit with a change in taxation rules that puts UK-based operations at a massive disadvantage to competitors on the Continent when selling goods into the EU.
The issue relates to a little-known regulation known as the margin scheme. This allows any business based within the EU to pay sales taxes, such as our 20% VAT, on just the profit margin of the trade.
For example, if a business like Watchfinder bought a pre-owned Rolex Submariner for £10,000 and sold it for £15,000, VAT would only be applied to the profit of £5,000, — a £1000 tax bill.
Since January 1, the UK is no longer included in the margin scheme, so the same watch selling for £15,000 would now have £3,000 of VAT added.
Since all remaining 27 member states of the EU still offer the margin scheme, it means a customer buying the aforementioned Rolex from any trader based in the EU will pay £16,000 for the watch, but a UK-based business selling to an EU-based customer would have to charge £18,000.
The issue is reversed for EU-based operators such as Chronext selling into the UK.
The disadvantage on price is being compounded by difficulties getting goods cleared through customs.
Two of the largest pre-owned luxury watch specialists in the UK, Watchfinder and Xupes, have told WatchPro that losing the margin scheme means that selling watches between the UK and European Union is likely to seize up.
Xupes has already given the option on its website to select between stock held in the UK and that located in the EU where it has an operation in The Netherlands.
Watchfinder, now owned by the mighty Richemont Group, has operations across the world, but was previously able to all of its European inventory to every customer in the EU on the same terms. Now it faces the prospect of two prices for the same watch.
There are additional concerns that the most reputable operations like Watchfinder will be undercut by dodgy dealers buying and selling on the black market and not declaring sales for tax purposes.
This could set perceptions of the pre-owned industry back by years to the days when second hand watch dealing was synonymous with Arthur Daily types flogging dodgy timepieces from street markets.
It is also likely to spark a rush to acquire more watches within the UK, with rising demand potentially leading to higher prices.