With the end of the Brexit transition period on 31 December 2020, the UK has introduced a new ‘postponed VAT accounting’ scheme. Replacing the EU VAT regime that added tax on goods and services within the European Union, postponed VAT accounting is the new system put in place for businesses that import goods into the UK now that we have left the EU.
The new rules have applied from 1 January 2021, from the end of the transition period. From this date, all VAT-registered businesses in the UK (England, Scotland, and Wales) will be able to account for import VAT for goods imported into the UK from anywhere in the world, including the EU, on their VAT Return (in other words, postponed VAT accounting)
Northern Ireland will continue to act as part of the EU VAT area, so there will be no changes to the treatment of VAT or how to account for it for goods moving between the EU and Northern Ireland. However, businesses in Northern Ireland can still use postponed VAT accounting for imports from outside of the EU.
What is postponed VAT accounting?
Postponed VAT accounting removes the need to account for the import VAT that is normally due. Rather than going through the process of paying import VAT and reclaiming it on the VAT return, postponed VAT accounting means the VAT is accounted for as input and output VAT on the same return. This ensures the same outcome as the previous scheme, but one key difference is that the trader avoids making physical payments.
With postponed VAT accounting, VAT becomes payable on imports arriving in the UK from anywhere in the world if they are over £135, including imports from the EU. If you import goods that are not controlled into Great Britain from the EU from 1 January to 30 June 2021, you must account for import VAT on your VAT Return if you either delay your customs declaration or use a simplified customs declaration to make a declaration in your records.
Nevertheless, it is important to note that use of the postponed VAT accounting scheme is optional as you still have the option to pay the VAT upfront when the goods enter the UK. However, if you defer the submission of customs declarations, then postponed VAT accounting is mandatory.
Goods held in special procedures
Traders in the UK who declare goods into a special procedure can account for import VAT on their VAT when they submit the declaration that releases their goods into circulation from the special procedure.
VAT monthly statements
Traders using the postponed VAT accounting scheme can access their import VAT statement online. The statements show the total import VAT postponed for the previous month and they are available to view these in the first half of each month.
It is important to note that the statements are only available for 6 months from the date they are published, so it is recommended to download the statement so you can maintain a copy in your records.
Completing your VAT Return
One key difference with the introduction of postponed VAT accounting is that there are changes to the way you complete the boxes on your return form. You are required to account for postponed import VAT on the return for the accounting period for the date you imported the goods.
To view the changes, visit https://www.gov.uk/guidance/complete-your-vat-return-to-account-for-import-vat.
Estimating import VAT on your VAT Return
When estimating import VAT on your VAT Return, it is important you make your estimate as accurate as possible. You should base this estimate on the amount you have paid for the goods and any other costs you have agreed to cover (e.g., packaging, transport, insurance). This estimate can include any customs duties due on the goods you are importing but this is not compulsory.
Once you submit your declaration, your next monthly statement will reflect the actual import VAT due. The amount listed on this statement will take into consideration the import VAT due on any further customs duties. Lastly, you will need to make a final adjustment on your VAT Return to highlight the difference from your estimate, and you need to account for this on your next return.
If you don’t know the total customs value on the goods you import, you are still able to import the VAT on your VAT Return, despite not confirming the full customs value on the goods.
According to gov.uk, if you or your business uses the Customs Handling of Import and Export Freight (CHIEF) service, you should:
However, if you use Customs Declaration, you must:
How to complete your customs declaration to account for import VAT
Upon completing your customs declaration, you can select on your VAT Return that you will be accounting for import VAT.
If you use the CHIEF system, on your declaration you will need to:
Alternatively, if you use the Customs Declaration Service, you need to enter your VAT registration number into element 3/40.
If you act on behalf of someone else, you need to enter either their EORI number or VAT registration number on their customs declaration.
Overall, this new scheme is considered a welcome measure by many as it aims to avoid a negative cash flow impact on businesses as it will avoid having goods held in customs until VAT is paid. As a result of this scheme, businesses have the potential to see cash flow benefits if they already import goods from outside of the EU as it removes the need to account for import VAT.
At Tax Care Accountants, we offer UK tax return and self assessment tax return services to help you manage your tax returns. Alternatively, for further guidance on postponed VAT accounting, visit www.gov.uk/guidance/check-when-you-can-account-for-import-vat-on-your-vat-return.