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The move, introduced at the end of July, was designed to close a loophole by which the trade could avoid paying the full VAT on their profit margins by temporarily exporting works to zero-rated havens such as Switzerland or the Channel Islands.

Now they have to pay 17.5 per cent VAT on all works re-imported to Britain which have been exported from the UK within the previous 12 months.

As a result the considerable number of works consigned by British vendors for auctions in New York now cost a full 17.5 per cent to re-import to the UK.

“I’m horrified,” commented leading London Old Master specialist Johnny Van Haeften who, like many dealers only found out about the measure this week. “It’s making it so difficult to trade. The US bidder pays no VAT, we pay 17.5 per cent. It will certainly put the UK trade off buying in America.”

The blow is being made worse for UK dealers as at present buyers at sales outside the EU have no way of knowing whether a lot has been recently imported from the UK and is therefore subject to the tax.

The problem is currently being addressed by Sotheby’s, whose London Old Master specialist Alexander Bell revealed: “We’re talking in New York about how best to approach the problem, either through a symbol in the catalogue or a saleroom notice.”

Bell conceded the new VAT ruling puts the UK trade at a disadvantage when buying in New York, whose sales are responsible for just under half the world’s art auction turnover.