What is the postponed VAT system? - Importing goods into the UK
After the UK left the single market on New Year’s Eve last year - some accounting practices and systems changed for VAT registered businesses in the UK. One of these is the new postponed VAT system.
For businesses in the UK that import goods from anywhere in the world, they can use this new system. In the most simple terms, it essentially allows businesses to account for VAT on their VAT return, rather than having to pay the tax on goods on their point of entry into the UK and then having to claim it back. This removes the need to make payment, freeing up cash.
You do not have to register or apply to use the system but you do need to meet its strict conditions which include;
- Imported goods must be for use in your business only.
- Your EORI number, which starts with 'GB' is included on your customs declaration.
- You include your VAT registration number on their customs declaration where needed.
The postponed VAT system is designed to support your business’s cash flow - which 33 per cent of respondents to our finance pain points survey stated is their biggest challenge in 2021 aside from Covid-19 and Brexit. So as part of your cash flow strategy taking advantage of systems like postpone VAT will help to maintain it.
How does postponed VAT work?
For businesses who trade with the EU, one of the biggest changes following the UK leaving the single market was that goods brought in from the EU are now considered as imports. Postponed VAT accounting enables you as a business to account for and recover import VAT on these goods as input Tax on your VAT return.
The system can be used on any imported goods into Great Britain from anywhere outside the UK - and if you’re in Northern Ireland - you only need to use the system if goods are coming from outside the UK and the EU.
Do I need to apply for postponed VAT?
As mentioned above, you don’t need to apply or be authorised to use the system. If your business uses the system, customs will produce a declaration that will generate an online monthly postponed VAT statement. You will need this as reference to recover the import VAT as input tax on your VAT return.
It is therefore an optional system to use and if your business has the cash flow and wants to pay the VAT upfront, at point of entry, you can do - but you will need to obtain monthly C79 documents from HMRC.
Postponed VAT accounting is only mandatory if you have deferred submission of customs declarations because you wanted to utilise the six months customs deferment period leading up to the end of the transition period - which came to an end on 31 December 2020.
If you would like more information about postponed VAT accounting, take a look at HMRC’s latest agent update posted on February 17 - it provides helpful links which explain more. https://www.gov.uk/government/publications/agent-update-issue-82/agent-update-issue-82.