Introduced in January 2021 and now available permanently, there can be a significant cashflow advantage in using the government's Postponed VAT Accounting (PVA) system.
The government introduced this system in order to lessen the impact that import VAT has on businesses cash flow.
What is postponed VAT accounting? Traditionally, when bringing goods into the UK, you pay import VAT upon importation. You are then able to reclaim this VAT suffered as input tax on the next VAT return (subject to the normal rules). However – with the Postponed VAT Accounting system, businesses can account for VAT on their VAT return, rather than paying it upon importation.
This creates cashflow benefits as you will account for and recover import VAT on the same VAT return, rather than having to pay it upfront and recover it later. In the worst case scenario, a business with calendar quarter VAT returns could import goods on 1st October and not reclaim this until the December VAT return is due - 7th February, 130 days later!
A big misconception surrounding PVA is that it is solely related to Brexit and therefore only applies to importing goods from the EU. However, this is not the case, as British VAT registered business, this applies on imports from anywhere outside of the UK, such as India or China.
Why should I use PVA?
- It provides a boost to your business's cashflow, as you never have to pay upfront to recover the cost later.
- Avoids the need to pay the admin fee to your freight forwarder for paying the VAT on your behalf.
- Flexibility - PVA is optional, therefore it is allowed to use it on some imports but not others. However, it is recommended to stick to one approach else it could cause confusion when completing VAT returns.
How does it work? You should alert whoever is completing your import clearance documentation that you wish to use Postponed VAT. Please note that there is a difference between deferred and postponed VAT, it is postponed that you need to state.
The technicalities of this mean that on the import clearance form (Single Administrative Document or SAD), the method of payment box (4/8) should be blank, and your VAT registration number should be entered in box 3/40.
HMRC will complete a statement each month showing the imports with the VAT postponed. This can be accessed online, by registering here.
In order to register for the above statements, you will first need to register with the clearance service (where the freight company declare that the VAT has been postponed)
This means that no VAT will be taken by debit card, so you shouldn’t be receiving any calls asking for import VAT payments - if you do, you need to inform them that you wish to Postpone any VAT due.
Things to remember
- If you use several freight forwarders to bring your goods into the UK, you will need to notify each of them that you now wish to use PVA.
- Customs duty cannot be accounted for using PVA, so you may want to operate a deferment account depending on the amounts involved.
- When using PVA you will need to download a Monthly Postponed Import VAT statement (MPIVS) from your HMRC gateway account.
- You should also be aware of the changes to the boxes to be used when completing VAT returns and any software code changes that need to be made.
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Do you need any asisstance?
VAT is a complex area of taxation. Get in touch with the team at Oldfield via firstname.lastname@example.org or call 02476673160 and we will be happy to advise on the best solutions for your business.
Please note: This article is provided for information only and was correct as at time of writing (13/10/22). Any lists and details provided above are not exhaustive and are not intended to be full and complete guidance. No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.