As of 1 January 2021 VAT registered businesses that import goods into the UK from anywhere in the world can use a new system called postponed VAT.
This system lets those businesses account for the VAT on their VAT Return, rather than paying it immediately to Customs (e.g. at the port of entry).
Postponed VAT accounting’s purpose is to avoid an immediate impact to your cash flow when importing.
What is postponed VAT accounting?
At the end of the Brexit transition period (31 December 2020), VAT became payable on imports coming into the UK from anywhere in the world.
The way that this system works is very similar to the reverse charge system that was 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.
The outcome is the same but the importer has avoided the physical payment!
It is optional to use the postponed VAT accounting scheme. If you wish, you can pay the VAT upfront when the goods enter the UK (at the port of entry, for example, or after release from a customs warehouse).
Where you decide to continue paying VAT upfront, you will need to obtain monthly C79 reports from HMRC.
Postponed VAT accounting can be used by all VAT-registered businesses in the UK.
How does postponed VAT accounting work?
The import VAT is accounted for on your VAT Return in three of the ‘9 boxes’ that you need to fill in.
The following has been recently confirmed by HMRC:
- 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 your online monthly statement, excluding any VAT.
If you do not use postponed VAT accounting, and instead pay the VAT immediately when the imported goods enter free circulation, you will need to complete boxes four and seven only.
To assist with managing postponed VAT accounting, there are online monthly statements available. These new reports will show simply the import VAT that has been postponed during the previous month.
Import VAT should be calculated after duty and other costs. Because of this, it’s unlikely to be acceptable to estimate import VAT based on the supplier invoice alone.
The postponed accounting report will form a vital part of your VAT accounting records. Therefore, you will need to download and retain copies for your records in case the information is no longer available online.
As mentioned earlier, the C79 report should continue to be used for VAT you’ve paid at customs that’s not been postponed.
What’s the benefit of postponed VAT accounting?
Postponed VAT accounting is intended to bring relief to businesses worried about importing goods. It is fundamentally simple to use and should mean most businesses that currently trade with the EU were not impacted by Brexit in respect of VAT.
There are no negatives when it comes to making use of postponed VAT accounting, so there can be few, if any, objections within most businesses.
However, it remains a fresh administrative requirement and one that’s not been tested yet in any business.
If you decide to use the postponed VAT accounting system, make sure you implement any system changes – contact us if you need any assistance!
The content in this blog is correct as at 28 June 2021.