Since 1 January 2021, businesses registered for VAT that import goods into the UK from anywhere in the world, including the EU, can now use a new system called postponed VAT accounting.
This lets them account for the VAT on their VAT return rather than paying it immediately at the port of entry into the UK, providing a cashflow benefit.
What is postponed VAT accounting?
Since 1 January 2021, VAT becomes payable on imports coming into the UK from anywhere in the world if they’re over £135, including imports from the EU.
The postponed VAT accounting system avoids the negative cash flow impact on businesses faced with this additional VAT bill and prevents goods being held in customs until the VAT is paid.
The way it works is similar to the reverse charge mechanism used for EU trade prior to Brexit. Rather than physically paying import VAT and then reclaiming it on the subsequent VAT return, the VAT is accounted for as input and output VAT on the same return.
Do I need to use postponed VAT accounting?
Use of the postponed VAT accounting scheme is optional.
The alternative is to pay the VAT when the goods enter the UK (at the port of entry, or after release from a customs warehouse) but doing so will require monthly C79 reports to be obtained from HMRC, as was previously the case for non-EU imports.
However, postponed VAT accounting is mandatory for any business that defers the submission of customs declarations, such as making use of the initial six-month customs deferment period after the end of the transition period.
Businesses in Northern Ireland will continue to be considered part of the EU VAT area, so goods arriving from the EU will not be considered imports and will therefore not incur import VAT. However, businesses in Northern Ireland can still use postponed VAT accounting for imports from non-EU countries.
How does postponed VAT accounting work?
The import VAT is accounted for on the VAT Return as follows:
- Box 1 – VAT due on sales and other outputs: Include the VAT due in this period on imports accounted for through postponed VAT accounting.
- Box 4 – VAT reclaimed on purchases and other inputs: Include the VAT reclaimed in this period on imports accounted for through postponed VAT accounting.
- Box 7 – Total value of purchases and all other inputs excluding any VAT: Include the total value of all imports of goods included on the online monthly statement, excluding any VAT.
Businesses that don’t use postponed VAT accounting, and instead pay the VAT immediately when the imported goods enter free circulation, will need to complete boxes four and seven only.
A postponed accounting report will show the import VAT that has been postponed during the previous month. However, the postponed accounting report will only show imports for which there have been customs declarations and therefore won’t show imports where customs declarations have been deferred.
If customs declarations have been deferred, the import VAT will need to be estimated and then corrected in the next VAT Return once the declaration has been prepared.
Import VAT should be calculated after duty and other costs.
The C79 report should continue to be used for VAT paid at customs (the VAT that has not been postponed).
Postponed VAT accounting is intended to help all businesses importing goods, with the objective that businesses that currently trade with the EU are unimpacted by Brexit in respect of VAT.
If you have any queries about how postponed VAT accounting will affect you, please do get in touch with your normal RG contact.