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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

Untapping the potential of international trade

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.

While Brexit has posed new challenges for businesses, it’s also unearthing opportunities too, which your company could turn to.

Not only could international trade improve the prospects for your business, it could also boost the UK economy, according to a report by Sage and Capital Economics.

In the report, it points out that:

  • 375,000 UK small and medium-sized enterprises (SMEs) have exportable goods but are not currently doing so, facilitating international trade would unlock an annual £290bn in the economy through a rise in export revenues.
  • In response to the economic effects of coronavirus, many small and medium businesses have turned to trade, with 67% of SMEs either taking or considering measures to increase their revenue through exports in new markets.

Read the report and find out how your business could make a positive impact on the post-Brexit UK economy.

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 (40)

  • I am using Sage 200, normally suppliers freight companies import for us and put the duty and VAT through our deferment account. I have had consignments from USA where the duty has been passed through our deferment account, yet the VAT has gone through postponed accounting. How do I process this so that it includes these in my VAT return?

  • I’ve been trying to find an explanation of the double going on for PVA, can you shed some light on this please? We’re talking about VAT on our purchases so how does the entry to VAT Return Box 1 (Sales) come about?

    Please don’t refer me to your Q&A Live team!

  • I am a wine importer and I do not pay any duty or vat when my goods arrive, they sit in a bonded warehouse until sold or they leave as samples. I can input my PVA as directed in cloud accounting by creating my bonded warehouse as my import agent, they send me a PVA statement that I can input as import tax. This system works fine if I am selling the goods on as the client is paying the VAT on the excise and value on their invoice.
    Where this doesn’t work is when I have sent wine out as a sample, there is no corresponding invoice for the wine sent so no VAT charged on the duty or the value of the wine which needs to be paid and added to my tax return. How do I get around this? Do I need to invoice myself the VAT portion so that I can pay it on my VAT return as technically I am the one liable for the vat portion?

  • Although I can change the vat code to the on the supplier record, Sage 50 will not allow me to change bills already entered that are after brecit. Please advise if it is possible or there is a work around

  • I have just received my first postponed import duty statement from Chief. How do i process this through sage so it shows on my VAT return?

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

      Hi Lorraine,

      You can use tax code T18 in Sage 50cloud Accounts to process postponed accounting. Find out more here http://1sa.ge/mm6S50DU9eo.

      If you’re still require support then our Q&A Live team will be able to look at this with you. This specialist team are available Monday to Friday, 9am to 5pm at http://www.sage.com/uk/qa and will response in minutes, if not seconds and provide you with real time support.

      You can also visit Brexit Hub at http://1sa.ge/7NuX50DxyHN for the latest information on Brexit, including what you need to do in your Sage software. We’ll continue to update this as more information becomes available.

      Regards,

      Paul
      Sage UKI

  • We do warranty work for the equipment we import from Germany. This has always been reimbursed by the supplier raising an invoice from us to them with “VAT reverse charge mechanism applicable, art. 196 EU VAT Directive 2006/112/EG ” with a TAX % 0. We would then rasie a sales invoice on SAGE with a T4 VAT code. I have just received an invoice from them dated 30.1.21 using the same procedure, should I still be using T4.

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

      Hi Di,

      You can use our Pre-Brexit tax code finder http://1sa.ge/c8cq50DU8mm to determine the relevant tax code to use when posting sales or purchase transactions in Sage 50cloud Accounts.

      If you’re still not sure then our Q&A Live team will be able to look at this with you. This specialist team are available Monday to Friday, 9am to 5pm at http://www.sage.com/uk/qa and will response in minutes, if not seconds and provide you with real time support.

      You can also visit Brexit Hub at http://1sa.ge/7NuX50DxyHN for the latest information on Brexit, including what you need to do in your Sage software. We’ll continue to update this as more information becomes available.

      Regards,

      Paul
      Sage UKI

  • We are an SME turning over approx. £500K. We receive aircraft scales from all over the world for repair and calibration certification. These scales normally arrive in sets of 7 weighing approx 1/2 Tonne and are valued new at approx. £70K. We are now being asked to pay VAT on these imports . This can amount to anything up to £20K per contract. The charge for these services usually amounts to few thousand pounds each. The goods are with us no longer than three weeks and are then exported back to the customer.
    With as many as five or six arriving each week this is a major problem in cash flow.
    How do we avoid this situation

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

      Hi Peter,

      This is something HMRC will need to discuss with you. You can contact them directly to discuss this here http://1sa.ge/bDjv50BBhom or on 0300 322 9434.

      You can also visit our Brexit Hub at http://1sa.ge/HRks50CZqAH for the latest information on Brexit, including what you need to do in your Sage software. We’ll continue to update this as more information becomes available.

      Regards,

      Paul
      Sage UKI

  • Please can you help as i am getting confused with the T18 & T19 code. I have just received an invoice from an EU supplier. There is no VAT on the invoice. Do i therefore input it on sage using a T19 code. Do i only use a T18 code if there is VAT showing on the Invoice?

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

      Hi Rebecca,

      You can use our Pre-Brexit tax code finder http://1sa.ge/c8cq50DU8mm to determine the relevant tax code to use when posting sales or purchase transactions in Sage 50cloud Accounts.

      If you’re still not sure then our Q&A Live team will be able to look at this with you. This specialist team are available Monday to Friday, 9am to 5pm at http://www.sage.com/uk/qa and will response in minutes, if not seconds and provide you with real time support.

      You can also visit Brexit Hub at http://1sa.ge/7NuX50DxyHN for the latest information on Brexit, including what you need to do in your Sage software. We’ll continue to update this as more information becomes available.

      Regards,

      Paul
      Sage UKI

  • We now have our first chief impoirt vat statement, what is the easiest way of ledgering these values so that they appear on the vat return, without doing manual adjustment.

    Thanks

    Marc Borson

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

      Hi Marc,

      Our Q&A Live team will be able to look at this with you. This specialist team are available Monday to Friday, 9am to 5pm at http://www.sage.com/uk/qa and will response in minutes, if not seconds and provide you with real time support.

      You can also visit Brexit Hub at http://1sa.ge/7NuX50DxyHN for the latest information on Brexit, including what you need to do in your Sage software. We’ll continue to update this as more information becomes available.

      Regards,

      Paul
      Sage UKI

  • Query on Vat when importing goods purchased in €’s. We are using Version 27.1
    We understand that we need to use T18 and enter the ex vat and vat amounts as calculated by HMRC using a given exchange rate on the date of import as we believe we are meant to do.

    However, we buy our €’s on a different date and at a different exchange rate which when converted back in to Stg will make the (real) values different to those provided by HMRC at the port.
    How do we account for these anomalies in Sage in order to keep our records accurate.

    It would be convenient to enter our ‘real figures’; but they will not match HMRC’s figures which I assume they will not accept on our vat return.

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

      Hi Bob,

      Our Q&A Live team will be able to look at this with you. This specialist team are available Monday to Friday, 9am to 5pm at http://www.sage.com/uk/qa and will response in minutes, if not seconds and provide you with real time support.

      You can also visit Brexit Hub at http://1sa.ge/7NuX50DxyHN for the latest information on Brexit, including what you need to do in your Sage software. We’ll continue to update this as more information becomes available.

      Regards,

      Paul
      Sage UKI