On 1 January 2021, the British government introduced postponed VAT accounting as a new way to account for your import VAT. What are the changes it brings, and how can you start using it?
What is Postponed VAT Accounting?
After the Brexit transition period, VAT on commercial goods higher than £135 from the EU and the rest of the world becomes payable. It means you must settle your taxes first before you can claim your goods at customs.
To manage this change, HMRC introduced the postponed VAT accounting system.
It allows you to receive your import goods without paying the VAT. Instead, you can use deferred VAT on imports payment option by recording it on your return.
This new system aims to help you avoid negative cash flow. It applies to all UK VAT-registered businesses that bring in goods for business use into the country.
Postponed VAT Accounting is Optional
As of this writing, the use of postponed VAT accounting is optional. But it's a good way to limit your expenses, especially if you're experiencing challenges with your cash flow.
You can still pay your import VAT immediately if this is what you prefer. But you must get your monthly C79 reports from HMRC.
It only becomes obligatory if you defer the submission of your customs declaration.
You also do not need any approval if you plan to use this. If another person import goods on your behalf, a freight forwarder or customs broker, for example, you must inform them of your intention to use the postponed VAT accounting system.
Using Postponed VAT Accounting
Here are some reminders if you choose to use this system.
When filing your import VAT return, it is important to gather your complete details, including:
- your own records of custom entries you have made; and
- copies of your monthly postponed import VAT statement.
The statement containing the information you need to support your claims becomes available in the first half of each month. It's only available for six months, so you must download it immediately.
You can access your statement by logging in or creating an account here.
Cloud accounting software providers such as Xero, Sage 50, and QuickBooks Online have already added a new feature allowing you to record your deferred VAT information. Check with your accountant now if it's available in your favorite software.
Completing your VAT return
There are changes in how you complete boxes 1, 4, and 7 on your VAT return.
- For box 1, you must include the VAT due for the accounting period covering the date you imported the goods through postponed VAT accounting.
- For box 4, you must include the VAT reclaimed on the same period you’ve covered in box 1.
- And for box 7, you must include the total value of all goods you’ve imported, minus the VAT amount.
Import VAT Rule for Northern Ireland
If you’re from Northern Ireland, you can still use the reverse charge procedure for goods coming from the EU. But if the goods come from other countries outside the EU, you must use postponed VAT accounting.
Using postponed VAT accounting can have positive effects on your cash flow. Though its impact may be short-term, it can still help you reduce your business expenses. At the same time, it's a way to budget your finances well.
Do you need help in preparing and filing your taxes? Our accountants with extensive knowledge of UK tax laws can do the job for you. Talk with our experts today to learn more about our services. You can also download our Investing for the Future: Adopting Cloud Accounting for Your Small Business whitepaper to see how we can improve your accounting processes.