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

Businesses registered for VAT and import goods into the UK from anywhere in the world have been able to use postponed VAT accounting since January 2021.  

With postponed VAT accounting, businesses can account for VAT on their VAT return instead of paying it at the port of entry. This helps to reduce the impact on the company’s cash flow when importing, as the company does not have to pay VAT upfront.  

We explore what you should know about postponed VAT accounting, including how it works and its pros and cons.  

What is postponed VAT accounting? 

Since the Brexit transition period ended on 30 December 2020, VAT has become payable on imports into the UK worth over £135 from anywhere in the world, including the European Union (EU). 

Postponed VAT accounting can help reduce the impact on a company’s cash flow and means goods do not have to be held in customs until the tax is paid. 

With postponed VAT accounting, you can delay import tax. 

So, instead of paying import tax at the border for your goods, you’ll account for this and recover it on your VAT return. Otherwise, you must pay import VAT and then reclaim it via your tax return.  

Who can use postponed VAT accounting? 

If your business is registered for VAT in the UK, you can use postponed VAT accounting as long as you’re importing goods to use for your company.  

You should ensure you’re eligible beforehand.  

As Northern Ireland is still seen as part of the EU VAT area, goods from the EU will not incur import VAT as they will be viewed as ‘intra-community supplies’ similar to before Brexit.  

Any goods that travel between mainland UK and Northern Ireland are unlikely to be subject to import VAT as they will be treated as domestic sales. 

However, postponed VAT accounting can be used for imports from outside the EU and is mandatory for imports with a value of under £135.  

How does postponed VAT accounting work? 

To utilise postponed VAT accounting, you’ll first need to register with the Customs Declaration Service and complete the customs declaration form.  

You should include your: 

• Economic Operators Registration and Identifier (EORI) number. 
• UK VAT registration number. 

You’ll also need to put ‘G’ under the VAT tax type in box 47e to account for import VAT. Once you’ve done this, you should get a monthly online schedule of imports.  

On your VAT return, you need to account for postponing the import VAT. 

To fill in the form, you need monthly import VAT statements for any imports where VAT was postponed (or a C79 certificate if the importer paid it) from HMRC. 

You should download VAT import statements as soon as possible, as they can only be downloaded up to six months from the date of publication. 

Your form has three sections you must pay close attention to, including boxes one, four, and seven. These sections cover VAT due on imports, any VAT reclaimed, and the total value of imports.  

If you plan on paying VAT straight away, you won’t need to complete the first box, and you’ll need monthly C79 reports.  

It’s up to you whether you use postponed VAT accounting, but you must use it if you defer customs declarations. 

A qualified accountant can help you navigate this process and ensure everything is completed correctly. Unbiased can quickly match you with a qualified local accountant. 

What are the pros and cons of postponed VAT accounting? 

There are many advantages and disadvantages to consider before using postponed VAT accounting. 

The pros of postponed VAT accounting: 

• Flexibility: You can decide on which goods you pay VAT upfront and which you want to process under postponed VAT accounting. 
• It reduces the impact on your business: You don’t have to pay VAT upfront and can still access your goods. Without VAT accounting, your goods will be held in customs until payment is made.
• It’s easier to manage: Instead of paying import VAT and reclaiming it, you can process input and output VAT on the same form. You can also save money as you won’t need to pay someone else to handle VAT for you. 

The cons of postponed VAT accounting: 

• You need to calculate carefully: As import VAT is calculated after duties and other costs, you must ensure you work out the correct VAT payment to avoid accidentally underpaying. 
• Good recordkeeping is essential: You must ensure you have the relevant records and documentation every month so you can accurately fill out your VAT return form.  
• Clarifying mixed payments: While flexibility is a good thing, be clear about which goods are payable at customs and which have been postponed. 

Need help with your accounting needs? 

Unbiased can quickly connect you with a qualified accountant who can help with your personal and business accounting goals.