What is Postponed VAT Accounting?

Following Brexit, Postponed VAT Accounting (‘PVA’) was introduced in the UK and since January 2021 has been a great help to importers .  It is a really useful simplification and valuable aid to cash-flow.  This summary aims to explain what it is, how it works and how  you can take advantage of it.  If you need any further information or help, please get in touch.

So what is Postponed VAT Accounting?  (‘PVA’)

In a nutshell using PVA means that any business importing goods into the UK does not need to actually pay anything over to HMRC (unless import duty is due).  Instead the payment and claim for import VAT are both declared on the same VAT return.  It is a fantastic cash-flow gift.

What is import VAT?

Taking a small step back, it’s probably useful to think about what import VAT is.  Every movement of goods into the UK triggers import VAT being due to HMRC.  The amount of import VAT that is due follows the rate of VAT that applies to the imported goods themselves.  So although import VAT is a tax on entry, unlike import duty (which is a real cost) any import VAT due should be recoverable from HMRC on the next VAT return.

Being able to reclaim import VAT depends on the importer (typically the business bringing the goods into the UK) being registered for VAT and also being entitled to recover VAT under the normal rules.  So any import VAT paid is claimed in line with ‘input VAT’, being the VAT paid on any business purchases, by being claimed on the VAT return covering the date of import.

When do I need to pay import VAT?

Prior to the introduction of PVA, there were two main ways in which businesses importing goods into the UK could settle their import VAT bill.  One required payment on entry, the other was using a deferment account and are both still used for paying any import duty that might be due.  Both methods mean paying import VAT and then claiming back on a later VAT return, both methods result in delays and therefore create cash-flow costs.  Duty will always remain payable but for import VAT, the previous delays and costs can be removed by using PVA.

How PVA works

After 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 in writing that they wish to use PVA and no more import VAT has to then be actually be paid over to HMRC.

The import agent should then ensure that a box on the import documentation is ticked which will notify HMRC that the business has opted for PVA.  As a result the goods will be released for delivery and the importer will account for the import VAT due through their VAT return.

To administer the PVA system HMRC generates a monthly PVA statement which needs to be downloaded from the importer’s Customs Declaration Service (‘CDS’) account.  This shows the amount of import VAT due for the VAT period which needs to be added to both the sales and purchase side of the same VAT return without any actual outlay to HMRC.

Using PVA could not be simpler provided the import agent selects the correct option on the import declaration and the PVA statement is correct*.  If a business submits returns to the end of March, any imports from January to March should appear on the three CDS PVA statements.  When the March VAT return is due to be compiled, the business adds the total value of import VAT into boxes 1 and 4 of the VAT return and in this way, the import VAT is simultaneously paid and recovered.  Nice and easy.  Cash flow issues disappear.

*HMRC’s system continues to generate incorrect PVA statements including showing duplicating entries.  It is important to make sure any PVA statement is accurate before including those entries on your VAT return. 

What do I need to do to use PVA?

The great news with PVA is that there is no authorisation or registration required for businesses before they can use the system.  All that is required is that the business instructs their import agent in writing that they should use the PVA and declare Method of Payment G (‘MOP G’) on all future imports.  Although it should really be that simple, as a lot of import agents are instructed by the shipper or freight forwarder the MOP G message is often not passed on causing the importer to suffer cash-flow costs.  For this reason it is a good idea to ask for acknowledgement of the request from the agent and to also include clear details on the commercial /shipping invoice which the import agent should always see specifying the importers name and address, UK EORI, UK VAT no, Incoterm and MOP G.

The switch to PVA and MOP G should be immediate and the cash flow benefits then fall into place straight away too.  However you should check that import agents do not continue to charge you for import VAT, which might happen if they are failing to declare MOP G or in come case charge VAT even though PVA is

What about Customs duty?

Before being imported into the UK all goods have to be classified under the UK import Tariff and be allocated a commodity or an HS code which must then be declared on the import declaration itself.  It is this classification that dictates whether there are any restrictions, quotas or duties due on those goods when they enter the UK.

As any import duty is a real cost to the business (unlike import VAT duty cannot be reclaimed) it is vital to check the terms associated with any classification before importing the goods.  Whether import duty falls due often depends on the Origin Rules, which are complex and need to be carefully considered.

If import duty is due it will need to be paid using the same procedures as for import VAT when not using PVA – so that means payment must be made either when the goods are entered or by using a deferment account.

As ever we are working hard for businesses and accountants trying to stop VAT problems from happening.  Sooner is always betterPlease get in touch with any queries or concerns.

Posted in Brexit etc, Relief.