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Postponed VAT accounting: How it works for businesses importing goods into the UK

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Since 1 January 2021, businesses registered for VAT that import goods into the UK from anywhere in the world can use a new system called postponed VAT.

This lets them account for the VAT on their VAT Return, rather than paying it immediately (e.g. at the port of entry).

A UK-European Union (EU) trade deal was reached before the transition period ended on 31 December 2020. However the postponed VAT system would have been in place regardless of whether there was a deal or not.

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.

Note that this article is not a general discussion of post-Brexit VAT and taxes, or a discussion of post-Brexit customs.

For those details, see our comprehensive customs and VAT after Brexit blog.

Here’s what this article covers:

What is postponed VAT accounting?

Do I need to use postponed VAT accounting?

How does postponed VAT accounting work?

Postponed VAT accounting and Northern Ireland

Conclusion on postponed VAT accounting

Since the end of the Brexit transition period, VAT becomes payable on imports coming into the UK from anywhere in the world if they’re over £135.

This will now include imports from the EU.

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.

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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.

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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.

Note that the fast-changing world of Brexit means that some advice you might see about which boxes to complete could be out of date.

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.

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.

Note that these values can’t be manually adjusted in the VAT return boxes under Making Tax Digital (MTD) and must be recorded in the main record-keeping software.

Key to managing postponed VAT accounting are the online monthly statements. This new report will show simply the import VAT that has been postponed during the previous month.

As mentioned earlier, the C79 report should continue to be used for VAT you’ve paid at customs (that is, that’s not been postponed).

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.

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.

Remember that import VAT should be calculated after duty and other costs. Because of this, it’s unlikely to be acceptable to estimate import VAT based on the supplier invoice alone.

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.

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 travelling 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 below £135, postponed accounting will be mandatory.

Postponed VAT accounting is intended to bring relief to businesses worried about importing goods. It’s fundamentally simple to use and should mean most businesses that currently trade with the EU are unimpacted by Brexit in respect of VAT.

There are no negatives when it comes to making use of postponed VAT accounting, so there can be few if any objections within most businesses.

However, it remains a fresh administrative requirement and one that’s not been tested yet in any business.

You should look at what’s required and try to spot any implementation sore points for when it comes to dealing with postponed VAT accounting. If you’re in any doubt, reach out to your accountant or tax adviser if you have one.

Editor’s note: This article was first published in December 2020 and has been updated for relevance.

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Comments (13)

  • We receive a purchase invoice from an EU country for a monthly payroll fee and before Brexit it was a normal reverse charge which when entered on the vat return as output and input and had no impact on the amount to be paid to HM Customs. What happens now as these are not goods so all instructions are relating to bringing goods from EU to UK. I have received some Jan 21 invoices from EU to pay and they still say reverse charge so am really confused. Can you help please.

  • We import from Germany and are using T18 for such purposes with deferred VAT
    What is Box 9 for on the HMRC Vat return:
    It states “Total value of EC purchases, excluding VAT” but our EC purchases appear to go into Box 7
    Regards
    Cepstra (UK) Ltd

  • All my products (books) are zero rated for VAT and have a zero tariff applied, import and export. Does postponed VAT accounting apply in this case?

  • Hi

    It says in the article that ‘Key to managing postponed VAT accounting are the online monthly statements.’ Can you tell me where these online monthly statements come from?

  • Is it the case that, even though the goods which we import attract no duty/tariffs, we still need a Duty Deferment Account, and thus a DAN number, if we wish to defer payment of the import VAT and thus be able to avail ourselves of the Postponed VAT Accounting option?

    Also, if we register for Duty Deferment Electronic Statements online, will those statements then tell us exactly how much VAT we owe?

    Thank you for a helpful analysis.

  • I thought that I saw somewhere that you have to register for Postponed VAT accounting.

  • Take care! If you are not on the latest version of Sage, the work around is very complicated and not even easy to find on the hub. I had an online support chat yesterday and the person at sage said my only option was to upgrade!! not easy when you have 3rd party software and a large system. They didn’t even direct me to a work around, I had to trawl through other screens myself to work out where the info was.
    Not happy…..

    • https://www.sage.com/en-gb/blog/wp-content/themes/sage/dist/images/avatars/custom-avatar.png

      Hi Fiona,

      Sage 50cloud Accounts v27.1 introduces some new tax codes in the range T15 to T19, to make it easy to record EU and non-EU imports. In Sage 50cloud Accounts the postponed accounting tax code is T18 by default, unless you’ve configured your own code. You can find out more on this here http://1sa.ge/GZxG50CZqjf.

      For the latest information on Brexit, including what you need to do in your Sage software, you can visit our Brexit Hub at http://1sa.ge/iFSj50CZqjg. We’ll continue to update this as more information becomes available.

      Regards,

      Paul
      Sage UKI

  • How would you go about processing the monthly vat statement on Sage so the correct amounts are reported in Boxes 1 and 4.

    I presume all overseas suppliers should now be designated at T0 suppliers ?

  • Is a new VAT code being set up within Sage for imports/exports to EU countries from 1st January 2021?

    • https://www.sage.com/en-gb/blog/wp-content/themes/sage/dist/images/avatars/custom-avatar.png

      Hi Graham,

      For the latest information on Brexit, including what you need to do in your Sage software, you can visit our Brexit Hub at http://1sa.ge/FTMR50CKw2v. We’ll continue to update this as more information becomes available.

      Regards,

      Paul
      Sage UKI

  • Will Sage have a new Tax Code to deal with PVA so it goes to the correct boxes on the VAT return? Can you advise the details of this from a practical point of view? If I have import VAT to account for in Sage on 1st Jan, how do I do this?

    • https://www.sage.com/en-gb/blog/wp-content/themes/sage/dist/images/avatars/custom-avatar.png

      Hi Joanne,

      For the latest information on Brexit, including what you need to do in your Sage software, you can visit our Brexit Hub at http://1sa.ge/FTMR50CKw2v. We’ll continue to update this as more information becomes available.

      Regards,

      Paul
      Sage UKI