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Postponed VAT

Not going how I expected - can anyone give me the benefit of their experience?

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Hi all

So in short, as I understood things, pre 01/01/21 if you bought goods from India you had to pay import VAT before you could have your goods, you then got a C79 and recovered the VAT (subject to partial exemption).

After that, you no longer need to pay the import VAT and for India read 'anywhere but the UK'.  So if a client buys a widget from France they would receive the item and would record the VAT due and reclaimed on the VAT return the import occurs in.  I'm led to believe this is the default position (though you can apparently opt to physically pay the import VAT if you want to!), but a client has experienced otherwise.  They have been charged import VAT by a delivery company and were not given the option to do otherwise (and the delivery company felt they had done the correct thing by charging the import VAT).

Am I misunderstanding something or is the delivery company wrong?  I've advised clients to expect not to have to pay over import VAT, and none have come back to say that hadn't happened.

Thanks all.

Replies (6)

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A Putey FACA
By Arthur Putey
15th Jan 2021 15:32

Tom's post might be relevant here, its possible that whoever arranged the courier either did so before 31 Dec, or did not specify the correct Incoterm, or thinks that it is a B2C supply.
https://www.accountingweb.co.uk/any-answers/incoterms-ddp-responsibility...
The "fast parcel operators" should be following this guidance:
https://www.gov.uk/guidance/check-when-you-can-account-for-import-vat-on...

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Jason Croke
By Jason Croke
15th Jan 2021 16:14

Arthur's post could be correct, so many different reasons why its gone wrong for your clients.

The default position is that when the goods arrive in the UK, VAT is due to HMRC. The freight agent will pay this and recharge back to the customer, plus admin fee. This will be "DAP" Incoterms.

Postponed VAT Accounting is optional (not the default), although most people will want to use Postponed VAT Accounting for the obvious cashflow benefits.

In amongst all the HMRC guidance, whoever is organising the shipping, they instruct the freight agent to tick a box on the shipping paperwork (SAD/C88) that the recipient wants to use Postponed VAT Accounting, the freight agent will then know not to pay HMRC, HMRC will know they aren't getting paid and the recipient accounts for import VAT on their VAT return.

So this isn't about VAT, its about customs process and freight paperwork. Link here, scroll halfway down to "How to complete your cutoms declaration" and it basically says the freight agent has to insert "G" into Box 47e of the C88/SAD.
https://www.gov.uk/guidance/check-when-you-can-account-for-import-vat-on...

So unless you tell the freight agent that "G" is in play, then they will default to paying the import VAT, charging it back to customer and C79 comes in the post whereupon the VAT can be reclaimed.

If customer does opt for Postponed VAT Accounting, they wil not get a C79 (the C79 is only issued when VAT is paid at port), so to know what VAT can be postponed/accounted for on VAT return, your client must register for the CDS (Customs Declaration Service), link here https://www.gov.uk/guidance/get-access-to-the-customs-declaration-service they need a government gateway account.

They then download the monthly import statements (equivalent to C79) and this is what goes on their VAT return in box 1, 4 and 7.

The problem, with HMRC guidance is that it is written on the assumption the reader is an expert in freight/customs paperwork and that the reader intends to do all of this themselves, when in reality most shipments the freight agent does the paperwork and the seller/customer are oblivious to the behind the scenes worlds of import/export.

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Replying to Jason Croke:
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By Wilmo3
21st Jan 2021 08:43

Hi Jason - hope you don,t mind me jumping in here to ask a further question regarding this - Im new to the forum so forgive me if this is not good protocol!!.

I have similar experience with my fast track courier, at the moment they are withholding my goods because i wont pay the vat and duty on an import (they have the figures all wrong almost double than what it should be - it would appear to me that the customs declaration form has be processed incorrectly, I cant get any further info from them they just tell me its a customs fault and wont provide me with the declarations form. - anyway me question really is to use the pp vat accounting must I purchase computer software to link up to the Customs Declaration System?, or can I just instruct the courier company to I will declare the vat myself - Im not sure how this part of it works?. Many thanks in anticipation!!

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A Putey FACA
By Arthur Putey
15th Jan 2021 18:02

Thanks Jason for the detailed explanation, I hadn't got as far as thinking about the C79 so need to register for the CDS service.

A scenario I encounter is where a UK company makes a sale to a UK customer then discovers they don't have stock on hand, so gets an EU company to send it direct to the customer (a distance sale in old money). The EU company then invoices the UK company. A classic case of the supply being different from the sale. As far as the customer is concerned they are dealing with the UK company who charges UK VAT on the sale, so the last thing they want is for the customer to be asked to pay VAT they have already been charged.

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By ImNotSureBut
18th Jan 2021 08:29

Thanks both.

The problem my client seems to be having is that they only found out that they had VAT to pay after it had been paid - which is too late to fix.

Does HMRC expect all customers in the UK to tell their supplier every time they purchase something from outside the UK that they need the G adding to the box? Maybe just poor communication between customer and supplier then, odd that I have had a dozen or so clients where the postponed system has been used without them having to say or do anything (hence why I assumed it was the default), a couple of them hadn't even heard of it, so no way they opted in with their supplier!

Regardless, I will advise clients to advise suppliers to make sure 47e has a G in it, thank you very much for your help (and I'm glad my misunderstanding was with the process, not the actual VAT treatment :) ).

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By Barochan
17th Feb 2021 15:41

There is another twist to this, I believe.
"The policy, as stated in Revenue and Customs Brief 2 (2019), remains correct.
It is the owner, whose details (EORI) should be shown in box 8 of the import declaration, who is eligible to reclaim the import VAT, either in accordance with:
section 24 of the Value Added Tax Act 1994 (VATA) (if registered for VAT in the UK)
under part XXI of the VAT Regulations 1995 (SI 1995/2518)"

Ordinarily the purchaser is not the legal owner at the point of import. Legal title doesn not usually pass until goods are paid for in full. Therefore the purchaser isnt entitled to reclaim the import VAT.
You could argue that "ownership" passes due to Incoterms like FOB or FCA, not sure how strict HMRC would be on this.
Incoterms like DAP, all risk and cost stay with the shipper at point of entry to UK. Does this not mean technically we cannot reclaim Import VAT on purchases.

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