One of Britain’s most respected pre-owned and vintage watch businesses says sales to Europe have “dropped to zero” since January 1 when the post-Brexit trade deal passed into law.
Justin Koullapis, director of Watch Club, told WatchPro that trade to the EU is now being hit by a double whammy of the margin scheme being axed in the UK and shipments being delayed as customs officials are overwhelmed with new rules that are prompting them to stop packages containing valuable goods.
Watch Club has had a Mayfair boutique in The Royal Arcade, just off Bond Street, since 1996 as well as operating online.
Eddie Bloom, director at London-based Bloombar Watches, says his business is facing the same issues.
“Big problem!” he says in a comment on WatchPro‘s story last week on the topic.
Not only are pre-owned watches becoming more expensive for EU customers, most do not know about the change to the VAT rules, which is leading to confusion and anger.
“The issue not only lies with us UK dealers not being able to sell to the EU anymore, but also the vast amount of EU buyers who don’t realise that the rules have changed, and continue to buy watches from us on a daily basis, only to cancel the order when they find out that import VAT would be due,” Mr Bloom describes.
The issue for pre-owned specialists like Watch Club and Bloombar Watches is the UK’s withdrawal from the European Union’s margin scheme, which allows any business based within the EU to pay sales taxes, such as our 20% VAT, on just the profit margin of a trade (sale price minus cost price) rather than on the full price paid for a pre-owned watch.
Until December 31, if a UK business 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 £1,000 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.
Losing the margin scheme is a second blow to Britain’s world-leading luxury watch industry from the start of the year.
January 1 was also the date when The Treasury withdrew the VAT rebate scheme that allowed overseas visitors to immediately claim back VAT on high value goods like luxury watches.
This is expected to impact spending in this country wealthy visitors from outside the EU who will now be able to immediately reclaim VAT in tourist hot spots like Paris and Berlin, but not in the UK.
The issue seen as so serious that it was mentioned as a headwind in financial guidance from The Watches of Switzerland Group.
Chief executive Brian Duffy wrote in a recent financial update: “We believe that the UK Government has misjudged the impact of removing tax-free shopping for tourists and we will continue to support all efforts to have this changed.”
A petition has been lodged with Parliament calling for the government to reinstate tax free sales at airports and the VAT Retail Export Scheme.
The petition has currently been signed by 12,492 people. Click here to add your name.