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How your clients can prepare for postponed VAT accounting

9th Jan 2023
Brought to you by
xero

Xero is an easy-to-use platform for businesses and advisors.

Save content
Have you found this content useful? Use the button above to save it to your profile.

Small business clients importing goods worth more than £135 will be paying import VAT. And since Brexit, this now has to be paid on goods imported from the EU, too. This guide to postponed VAT accounting can help them understand how they can ease this change.

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Xero

The postponed VAT accounting (PVA) system was introduced by the Government to help businesses lessen the impact that import VAT has on cash flow. 

You’ll know how important this is to the ongoing success of your small business clients, with a huge number suffering from negative cash flow – when expenses in a given month exceed revenue. In fact, our recent research found UK small businesses are cash flow negative for 4.5 months each year. .

The PVA is a welcome effort to alleviate this pressure, and means that, rather than paying VAT on goods at the border and reclaiming it on your VAT return, businesses can ‘postpone’ the import VAT. 

This means they don’t need to make a physical payment for goods at the UK border – instead, businesses can account for the import VAT and recover it on the same VAT return. 

The benefits of PVA extend beyond cash flow, too – it avoids goods being held in customs until VAT is paid. Here’s a guide that can be passed onto clients who want to learn about the system.

Who can use PVA?

Any business registered for VAT in the UK can use the PVA system, and they can begin immediately – no need to apply or get permission. They just have to be importing goods for use in a business. 

Meanwhile, businesses in Northern Ireland are still considered part of the EU VAT area, so do not need to pay import VAT on goods imported from the EU, and the reverse charge will still apply. That said, PVA can be used by Northern Ireland businesses for imports from elsewhere in the world.

And your clients don’t have to use the PVA scheme if you don’t want to. It’s entirely optional, and they can pay VAT upfront at the border. They’ll just need to get monthly C79 reports from HMRC.

How does it work?

Your client’s business will need to be registered for the Customs Declaration Service if they are to use PVA. In order to use it when importing goods, the person completing the customs declaration form needs to include the following information for your business:

  • EORI (Economic Operators Registration and Identifier) number
  • UK VAT registration number (VRN)
  • Enter the correct payment method in Box 47e – if you are a VAT registered business and accounting for import VAT on your VAT return this will be code 'G'.
  • If your client uses PVA, instead of a C79 document, they will get an online schedule of imports to download monthly

How do clients complete VAT returns when using PVA?

If your client has postponed the import VAT on customs declarations they need to account for the VAT on their VAT Return, for the accounting period which covers the date they imported the goods.

They’ll need a copy of the monthly postponed import VAT statement (MPIVS) from HMRC, which, as you know, are usually available to view by the 6th working day of the month. Each statement shows the total import VAT postponed for the previous month. 

If a client asks how to fill in the form, the guidance below should help:

  • Box 1: Include the VAT due in this period on imports accounted for through postponed VAT accounting. This information will be on your monthly statement.
  • Box 4: Include the VAT reclaimed in this period on imports accounted for through postponed VAT accounting.
  • Box 7: Include the total value of all imports of goods in this period, excluding any VAT.

PVA can be a real boon for small business clients struggling with cash flow, and if they need further help, Xero can make it even simpler to stay on top of their incomings and outgoings, offering a real-time view of business finances so they can make smart, informed decisions. Our software even includes built in PVA functionality to make postponed VAT accounting simple.

By Stuart Miller, Head of Industry Engagement, Xero