Following Brexit, businesses importing goods into the UK from anywhere in the world were required to pay tax at the point of entry. This has created numerous challenges for businesses, increasing the strain on cash flow. To avoid this situation, the UK government implemented a new postponed VAT accounting scheme. Let’s define postponed VAT accounting and how to obtain a statement for your business.
What is postponed VAT accounting?
Postponed VAT accounting is a method for businesses to account for import VAT. This is also known as “postponed accounting” or “postponed import VAT accounting”.
A UK company must pay VAT on any imports from countries other than the EU that exceed £135, and this also applies to imports from the EU since Brexit. The payment is made in advance and will be reclaimed later
This significantly impacts UK businesses or companies registered for VAT, as they must pay the import VAT to avoid having goods held in customs, resulting in a negative cash flow.
Postponed VAT allows businesses to declare and record import VAT on the VAT return rather than paying tax right away. Remember that import VAT postponement is not the same as import declaration deployment. The import declaration delay refers to the delay (up to 175 days) in sending the full information about your goods to HMRC.
How postponed VAT account benefit your business
There are no long-term benefits attached to postponed VAT accounting as this is just beneficial to the cash flow in the short term.
For instance, a business has a VAT quarter ending 31st March 2022 and imported goods on 9th January. According to the old rules, import VAT would be paid upfront, let’s say the amount is £20,000.
This leads to the fact that the business will have a £20,000 deficit in its cash flow. The business can reclaim this on the next VAT return ending 31st March 2023, which isn’t due for submission until 7th May.
As such, the deficit will be there for several months. However, with the postponed VAT accounting mechanism, no upfront payment is required, so there is no deficit for this VAT in the cash flow.
What does the postponed import VAT accounting apply for?
The postponed VAT accounting applies to every company that is registered for VAT in the UK and imports goods for business uses into the UK. No application or approval is needed for this, anyone can start using the scheme at any time and immediately.
One of the things that you need to keep in mind is that there are different rules that apply to Northern Ireland in this case as the country is still part of the EU VAT area.
In addition, also note that for those businesses who are under the VAT threshold and have not yet registered VAT, they must sign-up for VAT to delay import VAT payment.
Is postponed VAT accounting compulsory?
No, using postponed VAT accounting is entirely optional.
The only time postponed import VAT accounting is required is if the company used the initial six-month customer deferment period after the Brexit transition period ended.
Alternatively, based on the wishes of the business, they can use the scheme of postponed VAT accounting or pay the VAT upfront when the goods enter the UK at the port of entry and reclaim it later.
If businesses do not use the postponed VAT accounting mechanism to improve their cash flow, they must obtain monthly C79 (import VAT certificates) reports from HMRC.
How to make a postponed VAT import statement
Before making the statement
Before making the VAT import statement, make sure that your business is getting an EORI number first. EORI is a system of unique identification numbers utilized by UK customs officials. It is required for importing commercial goods into the UK as well as exporting merchandise from the region to the rest of the world.
Postpone VAT on VAT Return
You must declare the VAT on your VAT Return if you have postponed VAT on your imports. You can sign in to the portal of government and continue the process of postponing VAT on the VAT return.
Your VAT statement including deferred VAT payments from a specific period can be downloaded from the Customs Declaration Service (CDS) customs system. Once you have your statement with you, you can fill in the figures in the following boxes on your VAT Return:
- Box 1
Include the VAT due in this period from postponed VAT accounting. This information is retrievable from the abovementioned monthly statement.
In case you have delayed your declaration and do not have the statement, you must estimate the amount.
- Box 4
Include the VAT reclaimed in this period on imports from the postponed VAT scheme. Just like in Box 1, this amount must be estimated if you have delayed your import declaration and do not hold a statement.
- Box 7
Include the total value of all imports of goods in this period, excluding VAT.
Note that if you choose to not use the postponed VAT scheme for some imports, you will only enter the figures in boxes 4 and 7.
Also, you can find more information about how to fill in and submit your VAT Return at the UK government website.
Postpone VAT on Custom Declaration
Usually, on your customs declaration, you will need to enter your EORI Number, starting with:
- GB for Great Britain
- XI for Northern Ireland
Your UK VAT number (VRN) is also required to be provided. In Box 47e, your payment method needs to be filled in. If you wish to postpone VAT accounting, you will need to enter a “G” in this box. By doing this, customs will not hold your goods but will note that import VAT will be accounted for later on.
You can subscribe to Customs Declaration Service directly on the UK government website.
With the complexity of customs declarations, many businesses choose to have transporters or customs agents complete this matter for them. You will then need to make sure that the agent is aware of your wish of postponing VAT payment.
Postponed VAT accounting in Northern Ireland
When it comes to postponed VAT accounting, things are getting a bit different with Northern Ireland. Since Northern Ireland continues to be part of both the UK and the European VAT area, the country holds a unique VAT and customs arrangement:
- Imports from the EU into Northern Ireland
These are treated as intra-community supplies and acquisitions. As such, postponed VAT accounting is not applicable and not necessary but the Reverse Charge mechanism will be applied instead.
- Goods movement between Northern Ireland and the rest of the UK
The goods are considered domestic sales and purchases. Still, no postponed VAT accounting is necessary. This will fall under the standard UK VAT procedure.
However, the postponed VAT accounting scheme is still applicable to businesses from Northern Ireland for imports from any country outside the EU.
Postponed VAT accounting is established to relieve businesses from the worry of importing goods and the impacts on their cash flow due to Brexit. You should understand the scheme and how to get your VAT postponed properly to make your business thrive and avoid any negative impact.
If you’re in any doubt, reach out to BBCIncorp and we can help assist you along the journey. Simply drop a message or connect with us at firstname.lastname@example.org and we will be in touch shortly.
Disclaimer: While BBCIncorp strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact BBCIncorp’s customer services for advice on your specific cases.
- What is postponed VAT accounting?
- How postponed VAT account benefit your business
- What does the postponed import VAT accounting apply for?
- How to make a postponed VAT import statement
- Postponed VAT accounting in Northern Ireland
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