With the onset of Brexit, the processes, procedures and requirements for businesses importing goods into the UK changed. Whereas in the past, businesses which dealt with imports of goods would be required to pay Value-Added Tax (VAT) immediately upon the receipt of goods into the UK, with the transition, there has now been introduced a sort of “delay” in terms of making such payments. This is known as postponed VAT accounting. To find out more about what it means and how it works, take a look below.
What is postponed VAT accounting?
Launched in January 2021, postponed VAT accounting was introduced in the UK to help importers of goods into the UK improve their cash flow. As a result, importers now are no longer required to pay VAT immediately upon receipt of their goods at customs, but can defer this payment to a later date when they submit their VAT return – services that aim to help small and medium enterprises (SMEs).
How does it work?
In order to use postponed VAT accounting, an importer will be required to file their postponed import VAT with their VAT returns. This means that a physical payment will not be required when you claim your goods at the border. However, the VAT will need to be captured on your VAT return. In particular, you will need to pay careful attention to the following boxes:
- Box 1: VAT due on sales and other outputs – here, you will need to include the VAT that is due during the specific period on imports that are accounted for via postponed VAT accounting.
- Box 4: VAT reclaimed on purchases and other inputs – this should include the VAT that’s been reclaimed during the relevant period on imports which are accounted for via postponed VAT accounting.
- Box 7: Total value of purchases and all other inputs excluding any VAT – this will include the full value of all goods imported, which are exclusive of VAT.
What are its requirements?
In order to take advantage of postponed VAT accounting, your business needs to be VAT registered.
What are the benefits?
The government’s intention when introducing these solutions includes to help businesses improve cash flow. In fact, research indicates that “facilitating international trade would unlock an annual £290 billion in the economy through a rise in export revenues”.
Is it compulsory?
Postponed VAT accounting is not compulsory and VAT-registered businesses are free to choose whether they will reclaim their VAT on their VAT return at a later date or whether they will pay it immediately at the port of entry. This system is intended to ease the cash flow of such businesses and make them more competitive.
Reliable bookkeeping services in London
Since VAT is multifaceted and requires extensive knowledge, it’s advisable to use the service of an experienced tax accountant in London. At Tax Navigator, we understand the importance of filing accurate and timely tax returns as well as maximising a business’ options when it comes to tax. Therefore, if you’re in need of some help or advice, don’t hesitate to reach out to us for assistance.