Postponed VAT Accounting: What Does It Mean For My Clients?

22nd Jan 2021
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With Brexit complete, UK businesses trading with the EU should know about postponed VAT accounting. Find out more.

A potential boost to cash flow

Postponed VAT accounting affects all VAT-registered business that import goods into the UK now that the Brexit transition period has ended.

Postponed VAT accounting is certainly not a new thing, but all the time the UK was part of the EU it was far less relevant. It basically allows businesses to account for the VAT on their VAT Return, instead of having to pay it immediately (at the port of entry for example).

Although a UK-EU trade deal was agreed on the 24th December 2020, postponed VAT was always going to be a feature as the UK is now a third country.

Postponed VAT accounting: What is it and how does it work?

VAT is payable on imports of over £135 arriving into the UK from any country in the world. Following Brexit, this will now include imports from the European Union.

For many businesses, postponed VAT accounting is welcomed as it can avoid negatively impacting cash flow when importing. At a time when businesses are looking to save every penny, the chance to avoid an immediate VAT burden is certainly appealing.

Postponed VAT accounting also means that goods aren’t held up at customers while the VAT bill is settled. Again, this is very useful for cash flow.

Postponed VAT accounting is similar in nature to the reverse charge system used before Brexit for trading in the EU. Instead of handing over the import VAT and then claiming it back on the next VAT return, the VAT is entered as input and output VAT on the same return. The result is the same, but the physical payment has been avoided by the importer in the short term.

Filling in the paperwork

The import VAT is accounted for on the company’s VAT Return in three of the ‘9 boxes’ that they must fill in. Brexit rules will continue to evolve over course of the coming months and years. This is why it’s strongly advised businesses check the Government guidance Complete your VAT Return to account for import VAT regularly to keep abreast of any changes.

Remember that import VAT must be calculated after duty and other costs. Therefore, businesses will unlikely be allowed to estimate import VAT based simply based on supplier invoice figures.

The postponed accounting report is a major part of a company’s VAT accounting records. It’s therefore important that businesses download and retain copies for their records in case the information is not available online later.

Do businesses have to use postponed VAT accounting?

No. The postponed VAT accounting scheme is not mandatory and businesses don’t have to use it if they choose not to. It is still possible to pay the VAT as soon as goods enter the UK, for example at the port of entry or following release from a customs warehouse. This will mean obtaining monthly C79 reports from HMRC, as is currently the case for all non-EU imports.

Bear in mind however that postponed VAT accounting is compulsory if a business delays the submission of its customs declarations. This would apply to those who have availed of the six-month customs deferment time following the closure of the transition period.

Postponed VAT accounting and Northern Ireland

All UK VAT-registered businesses can use postponed VAT accounting if they wish. However, businesses in Northern Ireland are remaining part of the EU VAT area, so goods entering from the EU are not classified as imports. This means they will not incur import VAT. However, businesses in Northern Ireland are still able to use postponed VAT accounting for imports from countries outside the EU.

Now that the 1st January has passed, the Northern Ireland Protocol has taken full effect. The result is that Northern Ireland has unique customs and VAT arrangements for goods traded in the EU, which England, Scotland and Wales are not included in.

We won’t look at this in detail here, but if any of your clients are based in or trading with Northern Ireland, we strongly recommend checking the website.

Get in touch

This article was produced by the R&D tax and funding experts at Myriad Associates, developers of Tax Cloud UK.

Research and development is crucial if companies are to grow and remain competitive. The government has long supported the benefits of innovation and growth as a way of boosting the UK economy. This is where R&D Tax Credits come in.

R&D Tax Credits allow companies engaging in innovative R&D work to claim back a substantial proportion of their expenditure. Even for SMEs, average claims are currently around £55,000, with up to 33 pence in every £1 of R&D costs reclaimable.

The attractive thing about R&D Tax Credits (besides the highly lucrative nature of the scheme) is that any UK company in any industry can be eligible. The scope of qualifying projects is also vast, and there’s no minimum pay out either. Essentially, if a company has invested money in a project that sought to make a scientific or technological advancement to benefit the wider field, then R&D Tax Credits are a strong possibility.

If this sounds like one of your clients, the best place to start is by familiarising yourself with the scheme by reading our R&D Tax Credits page. You may also find the following recent blogs of use too:

The Tax Cloud portal is a straight-forward, fast way of guiding claimants and their accountants through a successful, fully optimised R&D Tax Credits claim. With separate sections for both businesses and accountants, it’s simply a case of following the steps with full support from our experts along the way.

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See the Tax Cloud UK website for more information or call us on 0207 360 4437.