Postponed VAT Accounting: What is it and How Does it Work?
The Blue dot Team
The Blue dot Team
Postponed VAT accounting, also known as import VAT on your VAT return, manages your VAT payments and records if you import goods into the UK or Northern Ireland. This process can help your cash flow because you can use it to avoid paying VAT upfront – essentially, you declare and recover your VAT from your imports on the same VAT return.
According to HMRC, you can use postponed VAT accounting if your business is registered for VAT and if you are importing into the UK from anywhere outside of the country, or if you are importing into Northern Ireland from outside the UK and EU. This regulation came into effect on 01 January 2021 and can be used by any company importing goods into the UK.
Normally, when you import goods from abroad, you have to pay your VAT to Customs as the goods enter the country and this can be an expensive process. If you’re eligible for postponed VAT accounting, however, you don’t need to pay Customs when your items come into the country; instead, you declare and pay for the VAT in your next VAT return.
The impact of this process is significant for the business as you declare your VAT as payable and as a deductible in the same return, which means your cash flow isn’t affected.
Postponed VAT accounting makes a significant difference to companies that import goods from around the world, supporting their continued growth without placing a heavy cost burden on their bottom line.
There are several key benefits to taking advantage of postponed VAT accounting. These include:
Any company registered for VAT in the UK can take advantage of postponed VAT accounting. You can immediately start using the system without having to follow an extensive application process or having to submit any paperwork.
You do, however, have to meet several key requirements.
Understanding VAT on Services post-Brexit is complex. While quite a few VAT on services changes were made, there are some business to business (B2B) and business to business (B2B) services to customers in the UK and EU that have changed. To understand these changes, you need to understand terms like ‘place of supply’ or ‘country of supply’ and how this impacts your VAT charges and registration. These changes came into effect as of 01 January 2021 and you need to know how they will affect you moving forward.
You will charge your customers in EU countries 20% VAT on your products and services unless you go over the predetermined EU sales value threshold. If this happens, you will need to register for VAT in that country.
It is important to note that VAT regulations and expectations differ from country to country in the EU so you would need to learn about each country’s requirements before registering.
The table below provides you with a detailed breakdown of how the VAT rules differ from country to country within the EU.
|VAT Rate is 19%
Reduced VAT rate is 7%
|VAT Rate is 24%
Reduced VAT is 14%
|VAT Rate is 25%
Reduced VAT rates of 12% and 6%
|VAT Rate is 21%
Reduced VAT 10%
Second Reduced VAT is 4%
|Spanish Tax Agency
|VAT Rate is 20%
Reduced VAT are 10% and 5.5%
Super-Reduced Rate is 2.1%
|VAT Rate is 22%
Reduced VAT of 10% and 5%
Super-reduced VAT 4%
The EU has created standardised rules for VAT across the region but each country may apply or use these rules differently. This can make for doing business across different countries within the EU quite complicated.
The rules for VAT are:
You can benefit from postponed VAT accounting across a variety of different EU countries. The table below shows which countries offer different VAT accounting options.
|VAT & Customs Deferred Accounting
|Postponed VAT Accounting
Once you’ve decided to take advantage of postponed VAT accounting, you will need to follow several steps to manage the process.
Step 1: Notify every company and freight forwarder you work with so they are aware of the fact that you use postponed VAT accounting.
Step 2: Ensure you include your Economic Operators Registration and Identifier (EORI) number on your customs declaration forms alongside your UK VAT registration number. When you submit your VAT return, this information will be used to cross-check your imports and VAT duties.
Step 3: Gather all the required paperwork and documentation required to submit your postponed VAT accounting form to HMRC. Delivery companies such as DHL make it easier for you to manage this process by helping you with the relevant paperwork. DHL has actually made it mandatory for companies to use postponed VAT accounting. Keep meticulous records of all your imports as a reference.
Step 4: Register for the Customs Declaration Service as this is the primary platform that monitors the movement of goods in and out of the UK. This will ensure that all your imports are allocated to postponed VAT accounting, and the service will provide you with an online breakdown of your imports that you can download and use to complete your VAT return. These are usually available to download by the sixth day of each month.
Step 5: Double-check your records against the form provided by HMRC to ensure your imports and VAT charges match. Then log into your VAT portal online to submit your VAT return.
Step 6: When you submit your VAT return, you will need to tick the box that confirms you’re using this process, provide your EORI number, include the VAT due on your sales and outputs, include the VAT you’ve reclaimed on purchases and other inputs, and then include the total value of all your purchases and inputs excluding the VAT amount. These account for boxes 01, 04 and 07 on your VAT return form.
There are some key things you need to consider when you’re managing your postponed VAT accounting:
Here are some of the most common questions companies ask when it comes to postponed VAT accounting.
What is PVA?
This is simply the short form of postponed VAT accounting and is how this process is most commonly referred to in tutorials and documentation.
How does this benefit the small business?
PVA is beneficial for reducing the burden of VAT on your cash flow if you import goods into the UK. Instead of lengthy payment processes, creating a deferment account, or having goods held at customs until you can pay VAT, you simply submit your PVA to HMRC in one VAT return.
Is Customs duty included in PVA?
No, it’s not! So, you will potentially need to open a deferment account to handle any unexpected Customs charges.
Do I need to use PVA if my imports are less than £135?
No – there are different rules for VAT on imported goods that sit below the threshold of £135. You can find out more here.
Your business can benefit from postponed VAT accounting as it reduces the time you spend on admin, improves the import process through customs, minimises admin, and gives you a smoother cash flow. The latter benefit is perhaps the most significant – if you take advantage of this process, you won’t have to pay VAT in advance and then wait for HMRC to reimburse you, and this can really take the edge off your cash flow.
The EU’s varied VAT landscape and the challenges introduced by Brexit have made this quite a challenging space to manage and overcome. You have to find out precisely what postponed VAT accounting practices are offered by the specific country you operate in within the EU and then apply these to your VAT applications and submissions. As every country is different and applies the laws differently, this is a meticulous process that takes time to ensure compliance. Postponed VAT accounting, however, offers similar advantages across the EU so you should take advantage of it to streamline your VAT handling within this diverse VAT landscape. This approach is particularly beneficial in the post-Brexit era, simplifying cross-border transactions and VAT reconciliation for EU-based businesses dealing with the UK.
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