With the end of the Brexit transition period, there are changes that businesses subject to VAT must take into account. The changes include the introduction of a deferred VAT settlement for importers registered for VAT. In this guide, we explain what deferred accounting is, why it exists now, and how to use it.
Understanding Postponed Accounting
Postponed accounting for import VAT is a significant change in the way VAT-registered businesses in the UK handle the taxation of imported goods. Since the end of the Brexit transition period, VAT becomes payable on imports over £135 from anywhere in the world, including the EU. The postponed VAT accounting system, introduced on January 1, 2021, aims to mitigate the immediate financial impact of this VAT payment on businesses. Under this scheme, businesses can declare and recover import VAT on the same VAT return, thereby not having to pay VAT at the time of import at the border.
Why Has the Government Introduced Deferred Accounting?
The EU has special VAT regulations, which aim to promote trade between member states. After the Brexit transition period, Great Britain is no longer a member of the EU's VAT area. This means UK businesses will now have to pay import sales tax when importing goods worth over £ 135, even if importing from the EU. This applies in addition to any customs and excise taxes that may apply.
The government introduced deferred accounting to help businesses adjust to change. In doing so, deferred accounting is designed to reduce the impact that import sales tax can have on a business's cash flow.
The Mechanism of Postponed VAT Accounting (PVA)
The PVA system is also referred to as postponed accounting or postponed import VAT accounting (PIVA). It is one of the UK Government’s business support measures post-Brexit. This mechanism allows businesses to record the import VAT on their VAT return instead of paying it immediately upon the goods' entry into the UK. This accounting method is especially beneficial for businesses that do not use customs warehousing to defer VAT payments to HM Revenue & Customs (HMRC).
Eligibility and Registration
To be eligible for postponed VAT accounting, businesses must be VAT registered in the UK. When importing goods worth more than £135, these businesses can use postponed accounting to account for the import VAT they incur. To utilize this system, an importer must enter a specific code on their import declaration. This code allows the VAT on import liability to be accounted for in the importer’s VAT Return, which now includes new boxes to record this information. It's important to note that if an importer wishes to pay the VAT upfront, they should not enter the relevant code.
Benefits of Postponed Accounting
The primary benefit of postponed VAT accounting is improved cash flow. By allowing businesses to declare and recover their VAT from imports on the same VAT return, it helps them avoid the burden of paying VAT upfront. This can be particularly advantageous in managing cash flow effectively as it avoids the cash flow issues that might arise from the immediate payment of import VAT at the border.
Postponed VAT accounting is a vital adaptation in the UK's VAT system post-Brexit. It helps businesses manage the additional VAT obligations introduced due to the end of the Brexit transition period. By deferring the payment of import VAT and allowing it to be declared and recovered on the same VAT return, the system supports businesses in maintaining a healthier cash flow, ensuring they are not financially overburdened by the immediate VAT costs associated with importing goods.
Operational Details and Eligibility for Postponed Accounting
Eligibility for Postponed VAT Accounting
VAT-registered businesses in the UK are eligible for postponed accounting when importing goods into Great Britain from outside the UK or into Northern Ireland from outside the UK and EU. Notably, businesses do not require any approval to account for import VAT on their VAT Return, streamlining the process considerably. However, non-established taxable persons, or those without a fixed establishment in the UK, will need to appoint someone to handle customs for them, including the completion of import declarations.
Accounting for Business and Non-Business Use
Businesses can account for import VAT on their VAT Return for goods intended for both business and non-business purposes. However, if goods are imported solely for non-business purposes, they cannot be accounted for on the VAT Return, unless the importing entity is eligible for a VAT refund scheme. This flexibility accommodates scenarios where the intended use of the goods might not be determined at the time of import.
Special Procedures and Excise Goods
Goods declared into customs special procedures can be accounted for on a VAT Return when they are removed from such procedures, which include customs warehousing, inward processing, temporary admission, end-use, outward processing, and duty suspension. Similarly, when excise goods are released for use in the UK, also known as 'released for home consumption,' postponed VAT accounting can be applied.
Dealing with Unknown Customs Values
In cases where the full customs value of the goods is not known, businesses can still use postponed VAT accounting. They must use a guarantee to cover the unknown VAT amount and account for the known amount on their VAT Return. This provides a solution for situations where customs values may be subject to adjustment or not immediately ascertainable.
Import Declarations and Postponed VAT Accounting
When importing non-controlled goods from Ireland into Great Britain, businesses must account for import VAT on their VAT Return if they delay their import declaration or use a simplified declaration for imports. Additionally, if a business employs the services of a third party, such as a freight forwarder or customs agent, to import goods on their behalf, they need to ensure that the third party is informed about the application of postponed VAT accounting on the import declaration.
Intermediaries and Suppliers
If goods are purchased from a supplier who uses an intermediary for import and delivery, it’s crucial for businesses to agree with the supplier on how to account for import VAT. Some intermediaries may set postponed VAT accounting as the default option unless directed otherwise by the supplier. It is essential to maintain a written record of these agreements.
Completing the Import Declaration
During the completion of the import declaration, businesses must select the option to account for import VAT on their VAT Return. This decision is final once the declaration is submitted. It's important to include the VAT registration number in the declaration, which will be associated with the business's EORI number and recorded at the declaration level only.
How Does the VAT Deferral Reservation Work?
Instead of paying import sales tax on goods at the border and claiming it on your next sales tax return, you are “deferring” the import sales tax. This means that you must account for and reclaim import sales tax, all on the same sales tax return. You do not have to physically pay import sales tax when your products reach the UK border.
Do I Have to Pay Customs Duties for Deferred Invoicing?
The deferred settlement only deals with import sales tax, so you will continue to pay customs duties on the goods you import. The rights can be deferred on the monthly payments. To do this, the business must register with HMRC for a tax deferral account.
Do I Have to Change my VAT Registration to Use Deferred Import VAT settlement?
You do not need a separate permit to report import sales tax on your sales tax return. Just make sure that:
● Your business is registered for VAT.
● They import products that you will use in your business.
● The customs declaration contains both your tax identification number and the EORI number.
You need an EORI number to move goods between the UK (Wales, Scotland, and England) and other countries.
Can Northern Ireland Businesses use Deferred Accounting?
Businesses registered for VAT in Northern Ireland can use deferred declarations for imports from outside the UK and the EU. VAT and the way businesses charge it won't change as goods move between Northern Ireland and the EU.
Deferred Accounting and Special Procedures
Deferred settlement is also possible if you use 'special procedures' to import into the UK and provide customs clearance for your goods.
The special procedures are:
● Customs warehouse.
● Active improvement.
● Temporary admission.
● End-use
● Passive improvement.
● Suspension of service.
Should Companies Subject to VAT use Deferred Accounting?
Deferred settlement is optional in most cases, so you can pay the import sales tax upfront at the border if you want. If you delay customs declarations, deferred accounting is required.
Can I Claim Import Sales Tax Without Having to Postpone Accounting?
If your business is registered for sales tax, you can still claim the import sales tax you pay on the side of your sales tax return. You need a C79 certificate showing the import sales tax you paid. The origin of your certificate depends on how you submit your customs declarations.
Impact on Business Accounting Practices
Comparing Pre-2021 and Post-2021 VAT Rules
Prior to 2021, when UK businesses imported goods from outside the EU, VAT and duties would be paid upfront to release the goods from ports. The businesses would then reclaim the VAT on their VAT returns, leading to a significant upfront cash outflow. With the introduction of postponed VAT accounting in 2021, the process changed significantly. Now, businesses can declare and recover import VAT on the same VAT return, transforming it into a paper reporting exercise, with no upfront payment of import VAT required.
Practical Examples
Consider a UK business importing £50,000 worth of goods from China in 2020. They would have paid 20% import VAT upfront, totaling £10,000, and reclaimed it on their next VAT return. In contrast, under the 2021 rules, the business would inform the freight forwarder of their intention to use postponed VAT accounting, resulting in no upfront payment of the £10,000 VAT. Instead, the import VAT would be declared on their next VAT return, with no actual payment being transacted.
Benefits and Application
Postponed VAT accounting offers a significant short-term cash flow advantage. For example, a business importing goods in January would previously face a cash flow deficit until they could reclaim the VAT in May. With postponed accounting, this deficit is avoided entirely. All VAT-registered businesses in the UK are eligible to use these rules, and there is no need to apply or seek approval for postponed VAT accounting. However, businesses must communicate their intention to use the scheme to their freight forwarder or shipping agent.
The Future of Form C79
With the new scheme, the form C79, which is a VAT certificate previously issued to confirm the declaration of import VAT, is no longer issued for imports using postponed VAT accounting. However, it continues to be issued for businesses that opt to use the old import rules from 2020.
Navigating Postponed VAT Accounting
Understanding Monthly Postponed Import VAT Statements
To proficiently navigate the postponed VAT accounting system, businesses must understand how to read and use their monthly postponed import VAT statements. These statements are crucial for accounting for import VAT on VAT returns and serve as evidence for VAT that can be reclaimed. The statements are split into two parts:
Summary: This section details overall postponed import VAT activity, including the total amount of import VAT to be accounted for on your VAT return for that month and the amount of import VAT postponed at each port of entry.
Individual Entries: This part lists individual entries under each port of entry, providing the date of import, entry number, declarant’s reference number, and the amount of import VAT to be accounted for on your VAT return.
Dealing with Estimates and Adjustments
If you've previously estimated the import VAT for entries, you only need to account for the import VAT that adjusts the estimate to the amount shown on the statement for those entries. This adjustment is critical when the full customs value of the goods is not known at the time of import.
Practical Guidance
Ensure Accurate Declarations: It's important to ensure that your import declarations are accurate, as these will reflect on your postponed import VAT statements.
Timely Reconciliation: Regular reconciliation of your postponed VAT accounting statements with your VAT returns is essential to maintain accurate records and to ensure that you are reclaiming the correct amount of VAT.
Keep Informed: Stay updated with any changes in VAT legislation or procedures by regularly checking official HMRC guidance and updates. This proactive approach can prevent potential non-compliance issues.
By staying informed and maintaining accurate records, businesses can effectively manage their import VAT obligations and benefit from the improved cash flow offered by postponed VAT accounting.
Key Aspects of Import VAT
Eligibility and Application: Businesses registered for VAT in the UK can account for import VAT on goods imported into Great Britain from anywhere outside the UK, and Northern Ireland from outside the UK and EU. This also applies to goods moved between Great Britain and Northern Ireland under certain customs procedures. No specific approval is needed to account for import VAT on the VAT Return.
Accounting for Business and Non-Business Use: Import VAT can be accounted for on the VAT Return for goods used for both business and non-business purposes, and for goods whose business use is undecided at the time of import. However, goods known to be used solely for non-business purposes cannot be accounted for on the VAT Return unless eligible for a VAT refund scheme.
Special Procedures and Excise Goods: Goods declared under customs special procedures can be accounted for on a VAT Return when removed from these procedures. This includes customs warehousing, inward processing, temporary admission, end-use, outward processing, and duty suspension. For excise goods, import VAT can be accounted for when they are released for use in the UK.
Dealing with Unknown Customs Values: Businesses can account for import VAT even if the full customs value of goods is not known. They should use a guarantee to cover the unknown VAT amount and account for the known amount on their VAT Return.
Mandatory Accounting Situations: Businesses must account for import VAT on their VAT Return if they import uncontrolled goods into Great Britain from Ireland and either delay their import declaration or use a simplified declaration for imports.
Using an Import Agent: If a business uses a third party to import goods (like a freight forwarder or customs agent), they must instruct them on how to account for import VAT. This decision should be communicated and recorded in writing.
Completing Import Declarations: When completing import declarations, businesses must select to account for import VAT on their VAT Return. This choice is final once the declaration is submitted, and their VAT registration number must be included in the declaration.
Consignments Valued at £135 or Less: Different rules apply for goods in consignments valued at £135 or less. These rules do not apply to the import of excise goods, for which import VAT can be accounted on VAT Returns regardless of consignment value.
How A VAT Accountant Can Help You with Postponed VAT Accounting?
A VAT accountant plays a crucial role in helping businesses navigate the complexities of postponed VAT accounting in the UK. With their expertise in tax law and accounting practices, they can ensure that businesses comply with HMRC regulations while optimizing their cash flow and VAT recovery processes. Here are the key ways a VAT accountant can assist:
Understanding the Postponed VAT Accounting System:
VAT accountants can explain the principles of the system, helping businesses understand when and how they can defer VAT payments on imported goods.
Eligibility Assessment:
They can assess whether a business is eligible for postponed VAT accounting and assist with the registration process if necessary.
Record-Keeping and Documentation:
VAT accountants can help maintain accurate records of imports, manage customs declarations, and ensure that all necessary documentation, like monthly postponed import VAT statements, is in order.
VAT Return Filing:
Accountants can aid in correctly completing VAT returns, ensuring that import VAT is accurately accounted for in the appropriate boxes of the return.
Error Adjustment and Correction:
If discrepancies or errors are discovered, a VAT accountant can guide the business through the process of making adjustments on the next VAT return or following HMRC's error correction procedures.
Reconciliation:
They perform regular reconciliations of postponed VAT accounting statements with VAT returns to ensure accuracy and compliance.
Training and Updates:
A VAT accountant can provide training for in-house staff on the postponed VAT accounting process and keep the business updated on any changes in VAT legislation or HMRC procedures.
Strategic Planning:
They can assist in the strategic planning of imports and purchases, helping to maximize cash flow benefits under the postponed VAT accounting system.
Liaising with HMRC:
If issues arise, the accountant can communicate with HMRC on the business's behalf, representing their interests and resolving disputes.
VAT Group Coordination:
For businesses that are part of a VAT group, accountants can coordinate the collection and filing of information to complete the group's VAT return accurately.
A VAT accountant ensures that businesses not only remain compliant but also take full advantage of the cash flow benefits provided by postponed VAT accounting, positioning them for better financial management and strategic growth.
FAQs
Q1: Can any VAT-registered business in the UK use postponed VAT accounting for imports?
A: Yes, any UK VAT-registered business can use this for imports from outside the UK, and Northern Ireland from outside the UK and EU.
Q2: Is approval required from HMRC to use postponed VAT accounting?
A: No, businesses do not need any special approval to account for import VAT on their VAT Return.
Q3: Can import VAT be accounted for goods used for both business and non-business purposes?
A: Yes, import VAT can be accounted for goods intended for both business and non-business purposes.
Q4: What happens if the goods imported are solely for non-business purposes?
A: Import VAT cannot be accounted for on the VAT Return for goods solely for non-business purposes, unless eligible for a VAT refund scheme.
Q5: How does postponed VAT accounting work with customs special procedures?
A: For goods under customs special procedures, import VAT can be accounted for on the VAT Return when they are removed from these procedures.
Q6: Can import VAT be accounted for excise goods?
A: Yes, import VAT can be accounted for when excise goods are released for use in the UK.
Q7: What if the full customs value of the imported goods is unknown?
A: A business can use a guarantee for the unknown VAT amount and account for the known amount on their VAT Return.
Q8: When is accounting for import VAT on the VAT Return mandatory?
A: It's mandatory for uncontrolled goods imported into Great Britain from Ireland if there is a delay in import declaration or a simplified declaration is used.
Q9: What should a business do if using a third party to import goods?
A: The business must instruct the third party on how to account for import VAT and keep a written record of this agreement.
Q10: How should the import declaration be completed for postponed VAT accounting? A: The VAT registration number should be included in the import declaration, and the option for accounting import VAT on the VAT Return must be selected.
Q11: Are there different rules for consignments valued at £135 or less?
A: Yes, different rules apply for goods in such consignments, except for the import of excise goods.
Q12: Does the value of the imported goods affect the ability to use postponed VAT accounting?
A: No, the value does not affect eligibility for postponed VAT accounting, though different rules apply for low-value consignments.
Q13: Can a business use postponed VAT accounting for goods imported for uncertain use?
A: Yes, if it's unclear whether the goods will be used for business purposes, postponed VAT accounting can still be used.
Q14: How do special procedures like customs warehousing affect postponed VAT accounting?
A: Goods under such procedures can be accounted for when they exit the procedure and enter free circulation.
Q15: Is there a requirement for businesses to adjust their VAT registration to use postponed VAT accounting?
A: No, there's no need to adjust VAT registration, but certain details must be included in import declarations.
Q16: Can businesses still claim import VAT if they choose not to use postponed VAT accounting?
A: Yes, businesses can claim import VAT through traditional methods, like using a C79 certificate.
Q17: What records should be maintained when using a third-party importer?
A: Written records of agreements on how import VAT is accounted for should be maintained.
Q18: Are there specific instructions for completing import declarations under this system?
A: Yes, specific information must be included in the declaration, such as the VAT registration number.
Q19: How should a business handle imports through postal services like Royal Mail Group?
A: For consignments exceeding £135 using Royal Mail Group, import VAT cannot be accounted for on the VAT Return unless specific conditions are met.
Q20: What should a business do if it changes how it wants to account for import VAT?
A: The business should communicate this change to its import agent or intermediary and update their import declarations accordingly.