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VAT and its intricacies can be complex to understand, especially if you are an importer of goods. However, it’s a legal obligation that you need to comply with. With this in mind, it’s important to understand what a VAT deferment account is and how it works. We take a closer look.

Imagine the following scenario: you’re an importer of goods into the United Kingdom. Subsequently, and according to the law, you are required to pay certain duties and taxes to the government for such imports. VAT or value added tax is one of these payments. However, while some importers will pay vat on each and every one of their consignments as and when they are received, processed and released, others have the option to defer such a payment. This payment can be made a maximum of one month later than the date of the amount due, in a special account known as a VAT deferment account.

Importers, or those who represent them before customs, are able to use the VAT deferment account in order to make a lump sum payment through direct debit. In fact, owing to and during the Covid-19 pandemic, HM Revenue and Customs or HMRC indicated this extension of time to importers, which was initially 15 days after the month during which the goods were brought into the country, as opposed to a month.

In order to use this deferment account, an importer needs to be allocated a deferment account number (DAN). If a forwarding agent is used on your behalf, such agent will be required to use the DAN correctly. In essence, the DAN enables the deferment of import duty and VAT for every import declaration made during the month until the month-end. After this, all the totals are automatically tallied up to get to the totals of import duty and VAT, and this will be payable to HMRC through direct debit on the next month. Deferment accounts are also no longer required to be backed by guarantees by importers when HMRC does a reclaim on payments due.

The rules are somewhat different for those who operate in Great Britain (England, Scotland and Wales) and those who operate in Northern Ireland. However, according to Gov.uk, excise only traders who wish to apply for a new duty deferment account and pay for excise duty only, will not be required to apply for two separate accounts.

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