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How post Brexit VAT works for businesses importing into the UK

9 December 2020
Gavin Hooker
Brexit, Accounting & Compliance

As of 1 January 2021, the end of the Brexit transition period, VAT registered businesses that import goods into the UK from anywhere in the world can use a new system called postponed VAT.

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

The system will be in place regardless of the outcome of the ongoing UK-European Union (EU) negotiations. In other words, it will operate if there is a negotiated outcome, or if there is a no-deal scenario.

Businesses need to prepare immediately!

Postponed VAT accounting’s purpose is to avoid an immediate impact to your cash flow when importing. If you already import from outside the EU then you may see cash flow benefits because it removes the need to account for the import VAT typically due.

So what is postponed VAT accounting?

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 if they’re over £135 and this will now include imports from the EU.

The postponed VAT accounting system aims to have goods held in customs until the VAT is paid and to avoid the negative cash flow impact on businesses that are hit by this additional VAT bill.

The way that this system works is very similar to the reverse charge system that is 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!

You do not have to use the postponed VAT accounting scheme as it is optional. If you wish, you can pay the VAT upfront when the goods enter the UK (at the port of entry, for example, or after release from a customs warehouse).

If you decide to continue paying VAT upfront then you will need to obtain monthly C79 reports from HMRC, as is currently 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. Businesses in Northern Ireland can still use postponed VAT accounting for imports from non-EU countries.

How does postponed VAT accounting work?

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.

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.

To assist with 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. Please note that 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.

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.

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

Postponed VAT accounting and Northern Ireland

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 with England, Wales and Scotland.

However, businesses in Northern Ireland can make use of postponed VAT accounting, just like businesses in England, Scotland or Wales.

For goods travelling between Northern Ireland and mainland UK, current guidance suggests that these movements will not incur import VAT and instead will largely be treated as they are today in respect of VAT like domestic sales and purchases.

So what’s the benefit of postponed VAT accounting?

Postponed VAT accounting is intended to bring relief to businesses worried about importing goods. It is fundamentally simple to use and should mean most businesses that currently trade with the EU are not impacted 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.

So what do I need to do now?

You should look at what’s required under the postponed VAT accounting system and implement any system changes to ensure you’re ready well in time for 1 January 2021 when postponed VAT accounting is implemented. Our other Brexit blogs may assist with your plans:

How do I prepare my business for Brexit?

Do you need an EORI number?

Brexit Update

We are here to support your business, if you have any concerns please call us or email Mark or Andrew.

The content in this blog is correct as at 09/12/2020. See terms and conditions.

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