For small businesses that import goods into the UK, figuring out what VAT means for you can be tricky at the best of times. Luckily, postponed VAT accounting is available to help you manage your VAT obligations more effectively. 

But what is postponed VAT accounting, how does it work, and how can it benefit your business?

If you’re a small business owner already importing goods, or if you’re simply considering it, this practical guide will help you understand the essentials and ensure you're on top of your VAT management.

What does postponed VAT accounting mean?

Postponed VAT accounting is a method that is designed to help importers simplify their VAT management. Instead of paying import VAT upfront to Customs, businesses can declare it directly on their VAT return. 

Doing this allows importers to report the VAT as both payable and deductible in the same return. As a result, they avoid the immediate cash flow burden of paying VAT at the point of import, which can sometimes prove difficult to account for. It also means there’s no net cost to the business. 

This method is similar to the reverse charge mechanism used for EU trade before Brexit.

It’s also important to understand the difference between postponed VAT accounting and VAT deferral. While the latter postpones the payment to a later date, postponed VAT just means there is no physical payment at the time of import. 

However, businesses still need to comply with certain conditions and tax laws to use this scheme effectively.

Do I have to use postponed VAT accounting if I import goods?

For most businesses importing goods into the UK, using postponed VAT accounting is optional. You can choose to pay the VAT upfront when the goods enter free circulation, such as at the port of entry or after release from a customs warehouse.  

However, postponed VAT accounting does become mandatory should businesses opt to defer custom declarations. 

It’s worth noting that businesses in Northern Ireland follow different rules. While goods arriving from the EU into Northern Ireland are not considered imports and won’t incur import VAT, Northern Irish businesses can still use postponed VAT accounting for goods imported from non-EU countries.

In cases where businesses do not have full rights to deduct VAT, import VAT will still be paid, even under the postponed VAT accounting scheme. This is common in financial services or real estate.

How does postponed VAT accounting work?

Postponed VAT accounting requires no formal application. Businesses looking to import into the UK simply need to be VAT registered. They also need to inform their customs agent that they wish to use a PVA.  

Then, using HMRC’s Import VAT Statement which details the VAT that is going to be postponed. This statement is essential for completing your VAT return, as it shows the amount of VAT due that must be reported.

When filling out your VAT return, you need to account for postponed VAT in three key areas:

• Box 1: Record the VAT due on imports during the period, using the information from your Import VAT Statement.

• Box 4: Reclaim the same VAT, as postponed VAT is deductible in the same VAT return, effectively cancelling out the cash flow impact.

• Box 7: Include the total value of the imported goods (excluding VAT), as shown on your Import VAT Statement.

If you pay VAT upfront at customs, a C79 certificate will be issued instead of an Import VAT Statement, and you’ll use that for your VAT return. It’s important to ensure that all your imports are correctly reported, either through the Import VAT Statement or the C79 certificate, to ensure HMRC has accurate information.

To note, you should retain copies of your Import VAT Statements as they are only available online for six months. If you delay submitting a customs declaration, you may need to estimate the VAT due and adjust it in the next VAT return once the actual figures are available.

Postponed VAT Accounting example

Let’s say your UK-based small business imports £10,000 worth of goods from outside the EU. Under the regular VAT system, you would need to pay 20% VAT on this amount at the point of import, which would be £2,000. 

Normally, this would be paid to customs when the goods arrive in the UK, creating a cash flow burden.

However, with postponed VAT accounting (PVA), you don’t have to pay this VAT immediately. Instead, you’ll account for the £2,000 VAT on your next VAT return, which allows you to both declare it and reclaim it in the same return.

Here’s how it would look on your VAT return:

• Box 1: You declare £2,000 as VAT due on the imported goods.

• Box 4: You reclaim the same £2,000, as it’s deductible under postponed VAT accounting.

• Box 7: You record the £10,000 value of the goods (excluding VAT) as part of your total purchases.

Because the VAT is declared and reclaimed in the same return, there is no cash outflow for the £2,000 VAT. 

What are the benefits to postponed VAT accounting?

There are numerous benefits to postponed VAT accounting for businesses who are  importing goods into the UK. These advantages include:

• Improved cash flow: by postponing the payment of import VAT, businesses avoid having to pay large sums upfront at customs. This helps free up cash that can be used for other business needs.

• Simpler VAT reporting: Postponed VAT accounting allows businesses to handle VAT on imports through their regular VAT return. This removes the need to deal with separate payments at customs.

• No need for upfront VAT payments: With PVA, businesses don’t need to pay VAT at the point of import. This is especially useful for businesses importing high-value goods.

• More accurate cash flow forecasting: Because the VAT is declared and reclaimed in the same return, businesses can more easily forecast their cash flow. 

• Avoiding delays at customs: Businesses can avoid situations where goods are held at customs until VAT is paid. This means that the processing of imported goods is smoother.

Can I use postponed VAT accounting in Northern Ireland?

Businesses in Northern Ireland can use postponed VAT accounting, just like businesses in England, Scotland, and Wales. 

However, postponed VAT accounting is not necessary for goods moving between Northern Ireland and EU countries, such as the Republic of Ireland, because these transactions are still treated as intra-community supplies and acquisitions.

For goods travelling between Northern Ireland and the rest of the UK (England, Scotland, Wales), import VAT will generally not apply, and these transactions will be treated similarly to domestic sales and purchases. 

Though for goods imported into Northern Ireland from outside the EU with a value below £135, postponed VAT accounting is mandatory.

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