Postponed VAT Accounting

If you have an import business registered for VAT in the UK, you may be eligible for postponed VAT accounting. This system can grant permanent financial benefits to your business.

Reading this article, you will learn what postponed VAT accounting is and who can take advantage of it. Once you understand how this system works, you can make an informed decision on whether you need it or can use it for your VAT returns, or you can just get your accountants to do it. Let’s get started!

What is Postponed VAT Accounting?

Postponed VAT accounting documents import VAT on your VAT return. Instead of paying import VAT at the point of entry, you can declare it on your VAT return instead to prevent negative cash flow.

The purpose of this system is to avoid payouts when importing goods into the UK and allows the importers to gain revenue on these goods before they pay import VAT.

By paying VAT on a later date, your input and output VAT balance each other out. It’s valid for imports from any part of the world, including the EU.

Postponed VAT accounting can be an excellent tool for all VAT-registered import companies across the UK. This includes businesses in Northern Ireland importing goods from outside the EU. If they import from the EU, they won’t be required to pay import VAT, unlike the rest of the UK.

Do I Need to Use Postponed VAT Accounting?

While recommended for certain businesses, the use of postponed VAT accounts is not mandatory by default. You can still pay the VAT at the point of entry or even if you consider this a more suitable option.

Some import businesses may opt for this and wait for the goods to be released from customs as they experience little to no loss during the process. If you import from outside the EU and choose to pay VAT upfront regularly, you must obtain monthly C79 reports issued by HMRC.

Should you choose to defer your customs declarations, postponed VAT accounting becomes mandatory. There is a six-month deferment period after your transition from prepayment, during which you aren’t required to submit payments. However, you must enter a postponed VAT accounting scheme after the deferment period.

How Does it Work?

Typically, goods are held at customs until the import VAT is paid. This produces a negative cash flow for businesses, as it forces them to pay tax on goods that haven’t yet been able to make money on.

While this money can be reclaimed on a subsequent VAT return, it still represents an enormous disadvantage. With postponed VAT accounting, you don’t have to make a physical payment to receive your goods. The VAT you pay and gain back is accounted for on the same return without waiting for the goods to be released from customs.

From the 9 boxes on your VAT Return form, 3 represent the import VAT. In most cases, Box 1 contains sales VAT and other expenses – and includes VAT coming from a previous postponed accounting period.

Box 4 represents purchase VAT and other income, like the postponed VAT from this period. Lastly, there is Box 7 with the value of purchases and expenses without VAT. This includes the value of all imported goods you have monthly statements for without VAT.

That being said, if you don’t use postponed VAT accounting at all, and pay VAT when the goods enter the country, you will need to fill out only Boxes 4  and  7. As per the Making Tax Digital scheme, any value entered into the boxes will be preserved in central software. Once the numbers are entered, you won’t be able to change them manually. For VAT paid directly at customs, you must implement the C79 record as well.

If you choose to use postponed VAT accounting, you will be able to manage it easily by making online monthly statements. This will help you manage all the import VAT postponed from the previous month and keep you up to date with your import-export expenses. Keep in mind that your statements will only include custom declarations from imported goods. It will not indicate deferred import VAT, making it harder to track them.

If you decide to take advantage of the deferment period, you must estimate VAT for goods imported during this period. After that, you will need to make a correction in your subsequent VAT Return. This is typically done after the declaration was prepared for border control, so VAT can appear on the next report.

VAT doesn’t include duty and other expenses related to importing and exporting goods, so the VAT accounting should never include them. In fact, to avoid this, estimations based on a simple invoice are not accepted, no matter how accurate they are. Despite this, if you opt for using postponed VAT accounting, you must save all your information and record it offline. So, even if there are no more records available on the internet, you will still have copies to serve as proof of postponed VAT.

Who Can Benefit From PIVA?

Small to medium-sized enterprises (SMEs) are the ones that benefit the most from a postponed import VAT statement (PIVA). Most of these businesses have either exportable goods they aren’t willing to lose money on and are struggling to finance imports due to VAT. By eliminating expense at the point of entry, both importers and exporters could barter more freely, building a well-supplied international trade network.

That being said, you don’t need your imported goods to be used for business purposes only. Goods imported for the combination of non-business and business purposes can also be subject to postponed accounting.

You can opt for postponed VAT accounting even if you don’t know that the goods will be used for business purposes after they enter free circulation. However, if you know for sure that certain goods will not be used for business, you can’t account for import VAT on your return for them.

As mentioned before, the benefits of VAT do not apply equally to the entire UK, as Northern Ireland represents an exception from EU VAT. You can, however, take advantage of PIVA when importing or exporting goods between Northern Ireland and Great Britain. However, to account for these imports, you must remove them from the special customs, where they are typically declared.

Taxable persons are free to take advantage of the PIVA without waiting for approval for their import VAT. This isn’t the case for non-established taxable individuals. While they can also use the PIVA scheme, they will need customs approval and someone to act as an intermediary at customs. This will need to be an established taxable person who can complete and cosign your custom declaration. On this declaration form, you must indicate that you want to account for import VAT on VAT Return.

Do You Need to Use it?

Apart from when you want to delay import VAT, they may also be other situations when you need to use PIVA. For example, if you are importing non-controlled goods from Northern Ireland into Great Britain, and want to make simplified custom declarations, you will need to account for import VAT on your VAT Return for these goods.

Simplified declarations are designed to cut down on waiting time for goods to be released from customs but you need to get them approved first.

Many couriers use PIVA as a default way to bring goods to the UK. If your carrier works only with postponed VAT and is either unwilling to pay at the point of entry or wait the necessary amount of time for the goods to be released from customs, your only option is to comply with their requirements and account for the VAT on your VAT Return.

Final Thoughts

Since postponed VAT accounting is relatively a new system, there is no clear-cut way to define who will benefit from it the most. To determine whether you will be able to take full advantage of it, you must weigh the requirements against the possible financial gains.

At the end of the day, it all comes down to your import VAT and returns. The higher the import VAT are you required to pay, the more financial benefits you can gain from a postponed VAT account.

Some businesses find it easier to pay these taxes upfront while for others, being able to postpone them can be a lifeline. All you need to do is work out which way is the best for you and your business.