Overshadowed by Brexit and the mayhem that came with it, Postponed VAT Accounting was introduced in the UK with effect from 1 January 2021. It is a beautiful rose amongst the thorns of the past eighteen months, but sadly seems to have passed many smaller to medium sized businesses by. So what is it, how does it work and how can you take advantage of it?
So Postponed VAT Accounting – what is it? In a nutshell Postponed VAT Accounting means that an importer does not need to actually pay anything over to HMRC (unless duty is due) so this is great news for cash-flow.
What is import VAT?
Taking a small step back, it’s probably useful to think about what import VAT is. This is VAT due on the movement of goods cross border; a tax upon goods coming into the UK. It follows the rate of VAT of the underlying goods that are bought in. Whilst a tax upon entry, import VAT (unlike customs duty) should be recoverable so long as the importer (typically the business bringing the goods into the UK) is registered for VAT and is able to recover VAT in the normal course of events. Import VAT paid is claimed by these businesses in the same way as ‘input VAT’ (VAT on purchases) through the VAT return covering the date of import.
When do I need to pay import VAT?
Prior to the introduction of Postponed VAT Accounting, there were two main ways in which businesses could settle their import VAT bill upon bringing goods into the UK.
The first, and least preferable, is to pay import VAT as soon as goods enter the UK. This can delay goods coming through Customs and creates the worst possible cash flow position. For example, if goods are imported into the UK on 2 January 2021 and the business submits calendar quarter returns, its import VAT claim will be delayed until the March return is submitted. This means that import VAT paid on 2 January would not be recovered until May.
The second, and until this year, most efficient method, was to set up a duty deferment account with HMRC or use an import agent’s duty deferment account.
Using either variation of this option, businesses or their agent would set up a duty deferment account, effectively a line of credit, with HMRC supported by a bank guarantee. The import VAT due would be taken by direct debit on the 15th of the month following the import. Using the example above (but with a duty deferment account), the goods would enter the UK on the 2 January, import VAT would be paid to HMRC by direct debit on 15th February. The importer would then use HMRC’s monthly import VAT statement (the C79) as evidence for a reclaim of import VAT on March return so that the repayment would not be achieved until May 2021.
Hallelujah for Postponed VAT Accounting!
As of 1 January 2021, importers can choose to ‘postpone’ their import VAT accounting until their VAT return is due.
Put simply, the importer notifies their import agent/freight forwarder/courier that they wish to use Postponed VAT Accounting. A box on the import documentation is ticked and HMRC is notified that the business will account for their import VAT through the VAT return. Accordingly, HMRC issues the business with monthly Postponed VAT Accounting statements which the business then downloads and accounts for both the import VAT due and the associated reclaim via the same VAT return.
Using Postponed VAT Accounting for the same example as above, the business imports the goods on 2 January 2021 but opts to use Postponed VAT Accounting. When the March VAT return is due to be compiled, the business accesses HMRC’s online system and downloads the Postponed VAT Accounting statements for January, February and March 2021. The total value of import VAT is then entered into boxes 1 and 4 of the VAT return. In this way, the import VAT is simultaneously paid and recovered. Nice and easy. Cash flow issues disappear. Hallelujah for Postponed VAT Accounting!
What do I need to do to benefit from PVA?
The great news is that there is no authorisation or registration required for businesses to use PVA. All that is required is that the business notifies their import agent in writing that they wish to avail themselves of PVA. It would also be advisable to request acknowledgement of the request. The switch should be immediate and the cash flow benefits will fall into place straight away too. Customs duty will still need to be paid on the basis of option 1 or 2 above, but hey, you can’t win them all!
Written by Kelly Eland, Senior Specialist of AVS VAT originally for the ICPA. Working for businesses and accountants to stop VAT problems from happening. Sooner is always better. Please get in touch with any queries or concerns.