The Benefits of Postponed VAT Accounting
Everyone who trades internationally needs to pay taxes on import into the destination country. But you might be able declare import VAT and reclaim it on the same VAT Return. This is known as Postponed VAT Accounting.
As everyone who trades internationally is aware, taxes need to be paid on import into the destination country. The UK is no different, where importers need to pay VAT (unless VAT exempt products or business) of which the standard rate is 20%. A lot of UK importers continue to account for the VAT in the traditional manners by making payment at the point the goods are imported before later reclaiming the import VAT.
However, there is another option which can have benefits for a business's cash flow by allowing them to declare import VAT and reclaim it as input tax on the same VAT Return.
This option is known as Postponed VAT Accounting (PVA).
How does PVA work?
If a business is VAT registered in the UK, then PVA is an option that is open to them.
As mentioned above, it allows a business to declare and recover import VAT on the same VAT Return compared to alternative payment methods which require a business to account for the import VAT through paying it upfront and recovering later. Clearly, as no payment is made up front with PVA, there is no cash flow issue while a business waits to be reimbursed by HMRC.
An importer can use PVA if:
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The goods they are importing are for use in their business
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They include their VAT registration number on the import declaration
How does a business benefit from PVA?
Firstly, there is no prior approval required to allow a business to use PVA. As long as a business is VAT registered, they can account for the import VAT using PVA as soon as they wish.
If a business wishes to use PVA to account for the import VAT, it is vital that they notify the individual/ business who will be completing the customs declaration on their behalf. These instructions should be put in writing.
When completing the customs declaration, the businesses VAT registration number will need to be entered at header level in Data Element //40 (using CDS software).
How to complete a VAT Return to account for Import VAT?
Firstly, a business should obtain, and keep records of, their monthly postponed import VAT statement. These statements show the total import VAT postponed in the previous month. The statements are usually available to view by the 8th working day of the month and they are provided in PDF format. A business can find their statements on the CDS Financial Dashboard and should download a copy once they are available.
With regards to completing the VAT Return, the usual rules apply for what VAT can be reclaimed as input tax. The monthly statement will contain the information to support a business’s claim.
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Box 1: Include the VAT due in this period on imports accounted for through PVA.
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Box 4: Include the VAT reclaimed in this period on imports accounted for through PVA.
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Box 7: Include the total value of all imports of goods in this period, not including any VAT.
If a business delays their import declarations, then they may have to estimate the VAT due. Once a business has submitted their delayed declaration, their following VAT Return will need to reference any adjustment in VAT value compared to their estimate and, account for any difference.
Conclusion
Alternative methods of accounting for import VAT require a business to pay the sum due before later reclaiming that payment through a VAT Return. This can have big implications on a business's cash flow. By using PVA a business can remove the concerns in regards to cash flow by accounting for and reclaiming import VAT in the same VAT Return.
A business should note that PVA can only be used for the import VAT. For example, it is not possible to account for customs duty through PVA. However, simply for the reasons listed above, there are clear benefits for a business to use PVA to account for import VAT. The last piece of advice to any business would be to speak to their freight forwarder, fast-parcel operator or customs intermediary before moving their goods and, put any instructions in writing.
For more information, have a look at the links below:
Check when you can account for import VAT on your VAT Return
