20 Jan Postponed VAT Accounting: How does it work?
On the 1st of January 2021, the UK officially became independent from the European Union and all the new post-Brexit measures came into effect. Brexit has brought certain changes that impact citizens as well as the way companies do business with the EU.
One of those changes is the imports of goods from the EU into the UK. The government has introduced a new postponed VAT accounting system, meaning that the way businesses report and pay VAT will be different. Here’s everything you need to know about the changes:
What is postponed VAT accounting?
As the Brexit transition period ended on the 1 January 2021, VAT became payable on imports of goods into the UK from anywhere in the world, now also including the EU. This applies to imports that are over £135.
The postponed VAT accounting system allows businesses to pay and recover the import VAT on the same VAT Returns, as opposed to paying the import VAT in advance and then reclaiming it through a VAT Return.
This allows companies to avoid the negative cash flow impact of paying VAT at the time of the import. It also helps avoid having goods held in customs until the VAT is paid.
The postponed VAT accounting system is similar to the reverse charge mechanism used for EU trade prior to Brexit.
Is it mandatory to use postponed VAT accounting?
The postponed VAT accounting system is optional and can be used by all VAT-registered businesses in the UK. If you wish, you can still pay VAT upfront at the time of the import of your goods into the UK (at the port of entry, for example). Keep in mind, though, that you will be required to obtain monthly C79 reports from HMRC - this is the same for the non-EU imports.
However, if your business defers the submission of custom declarations, you are required to use the postponed VAT accounting scheme. This includes using the initial six-month customs deferment period after the end of the transition period.
Postponed VAT accounting and Northern Ireland
Following the end of Brexit transition period, the government has agreed on unique VAT and customs arrangements for trade between Northern Ireland and the EU countries. This means that different rules apply to Northern Ireland compared to England, Wales and Scotland.
Businesses in Northern Ireland do not need to use postponed VAT accounting when moving goods from Republic of Ireland or any other EU countries, as they will continue to be treated as intra-community supplies and acquisitions. This means that the VAT will stay the same as it was before Brexit.
For any goods imported from Northern Ireland into the mainland UK, these movements will not incur import VAT as they will be treated as domestic sales and purchases. For any trade between Northern Ireland and other countries outside the EU, however, businesses will be required to use the postponed VAT accounting system.
How does postponed VAT accounting work?
There will be changes in the way you fill in your VAT Returns for postponed VAT. Import VAT will be accounted for in three out of “9 boxes” in your VAT Return that you need to fill in.
In Box 1 you must include the VAT due in this period on imports accounted for through postponed VAT accounting. You can either get this information from your online monthly statement or you will have to estimate the amount, if you do not have a statement or if you have delayed your customs declaration.
In this box, include the VAT reclaimed in this period on imports accounted for through postponed VAT accounting. Again, this will require an estimated amount, if you don’t have a statement or if you have delayed your customs declaration.
Here, include the total value of all imports of goods in this period, excluding any VAT.
If you are not using the postponed VAT accounting system and you are paying your VAT at the time of the import, you will need to fill in only the boxes 4 and 7.
How to estimate your import VAT
Your estimates of import VAT on your VAT Return must be as accurate as possible. This is based on the amount you have paid for the goods and any other costs you have agreed to cover. This could include, for instance, packaging, transport or insurance.
Once you submit your declaration, your next monthly statement will reflect the actual import VAT due. This will also account for import VAT due on any additional customs duties. Using this, you will need to make final adjustments to reflect the difference from your estimate and account for it on your next VAT Return.
The postponed VAT accounting system is intended to help businesses that are worried about importing goods. It is fundamentally simple to use and should minimise the impacts of Brexit to businesses currently trading with the EU countries, in respect of VAT. Overall, there are no negatives when it comes to using postponed VAT accounting.
However, as this way of accounting for your import VAT is new to businesses, you may encounter certain doubts or confusion. If you are unsure about using the postponed VAT accounting system, contact your accountant for help.
Get help with postponed VAT accounting
Adapting to the new way of accounting for import VAT can be confusing. If you find yourself in doubt, we can help you figure it out.
We’ve been helping businesses since 2002 and we can help your company easily adapt to the new postponed VAT accounting system as well as take care of your VAT Returns for you.
Our main goal is to ensure that you stay focused on what’s really important, while we look after the rest. If you think we can help you, why not call us for a friendly chat?
Get in touch by calling on 01202 755600 or drop an email to firstname.lastname@example.org.