We have curated a detailed set of FAQ's. We will update this section from time to time as more details immerge from the HMRC.
- Why do I need to know about Postponed VAT Accounting?
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The purpose of Postponed VAT Accounting is to avoid an impact to your cash flow when importing. In fact, if your business already imports from outside the EU then it might see cash flow benefits because it removes the need to account for the import VAT typically due.
- What is postponed VAT accounting?
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At the end of the Brexit transition period (31 December 2020), VAT becomes payable on imports coming into the UK from anywhere in the world, including EU countries, if the value of goods is over £135.
The postponed VAT accounting system aims to avoid the negative cash flow impact on businesses that are hit by this additional VAT bill and will avoid having goods held in customs until the VAT is paid.
The way it works is very 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.
The outcome is the same but the importer has avoided the physical payment.
- Do I have to use the Postponed VAT accounting?
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Use of the postponed VAT accounting scheme is optional. If you wish, you can pay the VAT upfront when the goods enter free circulation in the UK (at the port of entry, for example, or after release from a customs warehouse).
This will require you obtain monthly C79 reports from HMRC, as currently is the case for non-EU imports.
However, postponed VAT accounting is mandatory if you defer the submission of customs declarations – such as making use of the initial six-month customs deferment period after the end of the transition period.
Postponed VAT accounting can be used by all VAT-registered businesses in the UK, although 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 (see below).
However, businesses in Northern Ireland can still use postponed VAT accounting for imports from non-EU countries.
- How does postponed VAT accounting work?
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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.
- What entries do I need if I don’t use Postponed VAT Accounting?
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If you don’t 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.
- These values cannot be manually adjusted in the VAT return boxes under Making Tax Digital (MTD) and must be recorded as transactions in Sage.
- Is there any additional reporting to HMRC required?
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Not as such although Key to managing postponed VAT accounting are the online monthly statements that you can download from HMRC. This new report will show simply the import VAT that has been postponed during the previous month. You can use this to check you have accounted for all the Postponed VAT.
There are some important points to note:
- The postponed accounting report will only show imports for which there have been customs declarations and therefore won’t show imports that have been deferred.
- The postponed accounting report will form a vital part of your VAT accounting records. Therefore, you’ll need to download and retain copies for your records in case the information is no longer available online. HMRC are saying they will only retain reports for six months.
If declarations have been deferred, you’ll need to estimate import VAT and then correct it in your next VAT Return once the declaration has been prepared and the calculated import VAT appears on a subsequent report.
- Does Postponed VAT Accounting Apply to Services?
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No, services do not attract Import VAT and therefore not covered.
- Postponed VAT accounting and Northern Ireland
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The Northern Ireland Protocol following Brexit and the end of the transition period means Northern Ireland has unique VAT and customs arrangements for trade with EU countries, compared to England, Wales and Scotland.
However, businesses in Northern Ireland can make use of postponed VAT accounting, just like businesses in England, Scotland or Wales.
But there will be no need to use postponed VAT accounting when moving goods from the Republic of Ireland or other EU countries because these will continue to be treated as intra-community supplies and acquisitions – just as they were prior to Brexit/end of the transition period.
For goods traveling between Northern Ireland and mainland UK, current guidance suggests these movements will not incur import VAT and instead will largely be treated as they are today in respect of VAT — that is, like domestic sales and purchases.
Notably, where goods are imported into Northern Ireland from outside the EU from one business to another (B2B), and with a value above £135, postponed accounting will be mandatory.