What is Postponed VAT Accounting?
Postponed VAT accounting is a mechanism introduced by the UK government that allows businesses to delay paying import VAT on goods entering the UK. Instead of paying VAT upfront at the point of entry, VAT registered businesses can account for and report it on their VAT Return.
Since the UK left the European Union, businesses importing goods from both EU and non-EU countries now face the challenge of handling VAT payments at the border. Postponed VAT accounting was introduced to ease this burden, allowing businesses to spread the cost of VAT over time.
This blog post will define how businesses can use postponed VAT accounting along with the benefits and challenges that it brings.
Who can use postponed VAT accounting?
Any UK VAT-registered business can use postponed VAT accounting. The postponed VAT accounting scheme is not limited to specific industries or company sizes, making it accessible to any business importing goods into the UK.
The system is designed to help companies avoid upfront costs, particularly when dealing with large import volumes or high-value items, which can create significant VAT liabilities at the time of import.
However, to benefit from postponed VAT accounting, businesses must ensure they are VAT-registered and eligible to submit VAT Returns. Non-VAT registered businesses or those importing goods for personal use cannot take advantage of the scheme. Additionally, companies that use simplified VAT schemes, like the Flat Rate Scheme, may face restrictions when using postponed VAT accounting.
How can I use postponed VAT accounting?
Using postponed VAT accounting is straightforward once your business is set up for VAT. Here are the steps:
- Register for VAT – your business must already be VAT-registered with HMRC. If you’re not registered, you'll need to complete this process before accessing postponed VAT accounting.
- Import goods – when your goods arrive in the UK, you’ll need to complete a customs declaration. This is where postponed VAT accounting comes in.
- Select postponed VAT accounting on your declaration – when completing your customs declaration (via the Customs Handling of Import and Export Freight, or CHIEF, system), you'll need to tick the relevant box indicating that you wish to postpone your VAT payment. If you’re using a customs agent or freight forwarder, ensure they know you plan to use postponed VAT accounting.
- Account for VAT on your VAT return – instead of having to pay VAT upfront at the point of entry, you report it on your VAT Return. You will need to include the import VAT on your VAT Return as if you had already paid it and then reclaim the same amount as input tax (if you're eligible to do so).
- Review your monthly import VAT statement – each month, HMRC provides a Postponed Import VAT Statement (PVA Statement), which lists all imports that used postponed VAT accounting. This document is essential for completing your VAT Return as it contains the VAT amounts you must report.
What are the benefits of using postponed VAT accounting?
Postponed VAT accounting offers several benefits, particularly for businesses that rely on regular imports or high-value shipments.
- Improved cash flow – one of the main advantages is that businesses no longer need to pay import VAT upfront. Instead, the VAT is deferred until it is reported on the next VAT Return, allowing companies to keep funds within the business for longer. This can make a big difference for smaller firms or businesses with tight cash flow.
- Simplified VAT management – by incorporating postponed VAT accounting into your VAT Returns, you consolidate your VAT processes. This eliminates the need for separate payments at the time of each import, reducing administrative effort and allowing for a smoother workflow.
- Immediate reclaim of VAT – postponed VAT accounting allows businesses to recover import VAT immediately on the same VAT Return. For companies that are fully VAT-recoverable, this means there’s no gap between paying VAT at the border and recovering it later, improving financial flexibility.
- Avoiding border delays – without the need to pay VAT immediately upon import, businesses can avoid delays at customs caused by waiting for VAT payments to clear. This reduces the risk of goods being held at the border and speeds up the overall import process.
- Alignment with other VAT processes – postponed VAT accounting aligns with the UK's Making Tax Digital (MTD) initiative. It integrates smoothly into electronic VAT reporting, reducing the need for manual calculations and enhancing overall compliance.
What are the challenges of postponed VAT accounting?
While postponed VAT accounting simplifies some processes, it also comes with its own set of challenges that businesses need to manage.
Accurate record-keeping: businesses must keep accurate, detailed records of all import and output VAT. Failing to correctly report postponed VAT on your VAT Return could lead to penalties or complications with HMRC. Businesses must reconcile the monthly postponed import VAT statements from HMRC against their import activities.
- Administrative overheads: for businesses managing numerous imports or complex supply chains, postponed import VAT accounting can become time-consuming. Although the system removes the need for upfront VAT payments, it requires careful tracking and precise reporting within your VAT returns, increasing the overall workload.
- Eligibility for VAT recovery – not all businesses can reclaim the VAT they account for under postponed VAT accounting. For example, companies that are partially exempt or those that use the Flat Rate Scheme may not benefit fully from postponed VAT accounting, which will need to be factored into the VAT return calculation.
- Integration with accounting systems - businesses need to ensure that their accounting systems are capable of handling postponed VAT accounting. Not all systems are configured to manage postponed import VAT accounting, so additional setup may be necessary to track and report import VAT accurately.
Get in Touch
The VAT People are equipped to offer comprehensive, bespoke advice that helps you efficiently manage every aspect of your business's VAT including postponed VAT accounting. Contact our team today on 0161 477 6600, or complete our online contact form, and we will get back to you to arrange a consultation at your convenience.