Postponed VAT Accounting: What is it and How Does it Work?

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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.

What is Postponed VAT Accounting?

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.

Benefits of Postponed VAT Accounting

There are several key benefits to taking advantage of postponed VAT accounting. These include:

• Since VAT payments have become payable on imports coming into the UK on items over £135, this service reduces the financial impact on the business as you don’t have to pay the VAT upfront. Your negative cash flow is minimised as you can access your goods and services without paying VAT or running the risk of them being held in customs.
• Your import VAT is more easily managed as you place both your input VAT and output VAT on the same return. You don’t need to account for the import VAT by going through the lengthy process of paying import VAT and then reclaiming it – it’s all managed on the same return.
• It is a flexible process, which means you can select which items you will pay VAT on at customs and which you would like to be eligible for postponed VAT accounting. This may benefit you in circumstances requiring more careful VAT management, but it can get complicated.
• You don’t need to pay a fee to your freight handling company to handle the VAT processes for you. Now, because you are using postponed VAT accounting, the entire VAT process is managed automatically.

Who Can Benefit from Postponed VAT Accounting?

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.

• If you are based in England, Scotland or Wales, you can use this process when importing goods from any country outside the UK.
• If you are based in Northern Ireland, you can use this process when importing goods from outside the UK and the EU.
• If you are what HMRC defines as a ‘non-established taxable person’ then you must appoint an intermediary to handle this process for you.
• You are eligible for import VAT on your return if the goods you are importing are for your business so you can use or dispose of them and if your VAT registration number is clearly displayed on your import declaration form.

How Does The EU Handle VAT?

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. 

EU VAT Rules on a National Level

The table below provides you with a detailed breakdown of how the VAT rules differ from country to country within the EU.

What are the Standard and Special Rates of VAT in the EU?

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:

• VAT is charged across most goods and services within the EU and these charges are accrued and paid in the EU country where these goods and services are consumed. 
• VAT is not charged on the export of goods to countries outside of the EU but you will need to show proof that these goods were exported out of the region. This could be an invoice or an import customs document.
• There are VAT rules applicable at the national level and you can see which rules apply to which country using the smart drop-down menu provided by the EU here. 
• The standard VAT rate cannot be less than 15% in any EU member country, but EU countries can have a higher rate if required.
• There are several different types of reduced rate VAT that are applied to specific goods and services, such as food and accommodation, but will vary depending on the country. No EU country can reduce this rate to below 5%. 
• There are also special VAT rates that include super-reduced rates, zero rates and parking rates. The super-reduced rates are less than 5% and are applied to only some goods and services in some EU countries. Zero rates are applied to some goods and services however, even though the customer doesn’t pay VAT on these services, you can deduct the VAT you paid on purchases that relate to this sale. Parking rates are applied to goods and services that are not outlined in the VAT Directive. 

Which Countries in the EU Apply Deferred VAT on Imports?

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.

Postponed VAT Accounting Process

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.

Common Challenges and Pitfalls 

There are some key things you need to consider when you’re managing your postponed VAT accounting: 

• You must keep meticulous records. This includes your records of imports as provided to you by your freight partners, your purchase records, and the HMRC import breakdown you download each month. 
• If you have mixed payments – some imports are postponed VAT while others are payable at customs – you must highlight these and ensure they reflect on your VAT return to ensure HMRC repays you. The HMRC report for postponed accounting won’t show any imports or payments you’ve made on imports; it is only for your postponed VAT items.
• Your import VAT is only calculated after duties and other costs have been added to the item. This means you must carefully work out your VAT payments and amounts due to ensure they match what HMRC expects.

FAQs About 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.

Conclusion: Unlocking the Benefits of Postponed VAT Accounting

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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