Postponed VAT Accounting and Impact on Import VAT

Postponed VAT Accounting

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Postponed VAT accounting is available for UK businesses from 1st January 2021. The scheme will assist the cash flow for businesses, which import goods from anywhere outside the UK.

What were the Import VAT Rules in 2020?

To understand postponed VAT accounting, we must compare it to the old rules.

In 2020, imports from outside the EU into the UK, would be subject to import VAT and duties. Typically this would be handled by the shipping company, freight forwarder or other agent. The goods would not be released from the ports until the taxes had been paid by the UK business.

The UK business would then reclaim the VAT on their VAT returns, using a combination of the supplier invoice, shipping/agent invoice and a form C79 provided by HMRC.

To summarise, the payment is made up front and is then reclaimed later.

What are the Postponed VAT Accounting Rules from 2021?

The postponed VAT accounting rules allow the UK business to declare the VAT and recover the VAT on the same VAT return. No payment is made up front.

It is similar to the reverse VAT charge rules, where both output VAT to be paid and input VAT to be recovered, are declared at the same time.

To summarise, no payment is ever made. As a result, it becomes just a paper reporting exercise on the VAT return.

NOTE: Duties and the shipping handlers’ fees would still be paid. It is the import VAT duty which is avoided.

Example of the 2020 Import Vat Rules

A UK customer purchases £50,000 worth of goods from China.

The goods arrive at the UK ports, where the freight forwarder processes the customs documents. As a result, import VAT at 20% is charged totalling £10,000. VAT duty and the freight forwarder handling fees are also charged, bringing the total owed up to say £13,000.

The UK customer will receive a form C79, which is a VAT certificate, confirming that £10,000 import VAT has been declared.

Using the invoices and the form C79, the UK customer reclaims the £10,000 on their next VAT return using box 4 (VAT reclaimed on inputs) and box 7 (Total value of purchases excluding VAT).

Example of a 2021 Import under the Postponed VAT Accounting Rules

A UK customer purchases £50,000 worth of goods from China.

The goods arrive at the UK ports, where the freight forwarder processes the customs documents. The UK business must inform the freight forwarder of their intention to declare import VAT under the postponed VAT accounting rules.

Import VAT of £10,000 is unpaid. VAT duty and the freight forwarder handling fees are still payable, resulting in a payment of £3,000.

Using the paperwork provided, the UK customer, declares the import VAT unpaid on their next VAT return. This would go in box 1 (Output VAT due on sales). The box 4 (VAT reclaimed on inputs) and box 7 (Total value of purchases excluding VAT), would still be completed. The net result is no payment owed and it is just a paper exercise declaring the import.

Who can use the Postponed VAT Accounting Rules?

The postponed VAT accounting rules are available to all VAT registered businesses in the UK.

NOTE: Northern Ireland does have different rules for imports from the EU – see the HMRC link at the bottom of this blog for further details.

What are the Benefits of Postponed VAT Accounting?

There is no long term benefit. There is only a short term cash flow benefit.

As an example, a business has VAT quarter ending 31st March and imports goods on 4th January 2021. Under the old rules, import VAT would be payable now, let’s use the previous example of £10,000 import VAT.

As a result, the UK business has a £10,000 deficit in its cash flow. This can be reclaimed on the next VAT return ending 31st March 2021, which isn’t due for submission until 7th May 2021. Therefore the deficit remains in place for several months.

Under postponed VAT accounting, no upfront payment is necessary, so the cash flow deficit is avoided.

Do Businesses need to Apply for Postponed VAT Accounting?

No, there is no approval process. However the old 2020 scheme of paying import VAT up front is still available in 2021.

It is therefore important to inform the freight forwarder or shipping agent of your intention to use the postponed VAT accounting option (if preferred).

There are further instructions available for businesses who don’t use an agent as part of their import process. This can be found in the HMRC link at the end of this blog.

Are the Form C79 Documents to be Scrapped?

No. They won’t be issued for imports under the new postponed VAT accounting scheme, but will still be issued for businesses reporting under the old 2020 import rules.

Further Information on Postponed VAT Accounting

For further information please see the HMRC website on Accounting for Import VAT on the VAT Return and How to complete your VAT return to include Import VAT?

DISCLAIMER – Please note that the content contained in this article is for general information only and is not a substitute for professional advice – read our full disclaimer

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