Introduced on January 2021, postponed VAT accounting is a post-Brexit system designed to ease VAT costs for businesses that import goods into the UK.
Rather than having to pay the VAT due the moment you import the product, you can delay this until your annual VAT return to relieve stress on your books and protect your cash flow. It’s a great initiative that VAT-registered businesses should be taking advantage of.
To make sure that you’re using the system to its best, we’ve put together this guide to what is postponed VAT accounting, who is eligible for it, and how you can claim.
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What is postponed VAT accounting?
Postponed VAT accounting is a system introduced in January 2021 which allows businesses to pay for any outstanding tax on imported goods during their annual return, rather than the moment they’re imported into the UK.
Why the change in systems? You guessed it, it’s Brexit.
Post-Brexit trading has different rules to follow than when the UK was inside the EU.
Since January 2021, all VAT registered businesses have to pay VAT on imports coming into the UK from anywhere in the world.
Without the postponed VAT accounting system, businesses would need to pay the tax upfront out of their own pockets, which could pose a cashflow problem that didn’t exist before, particularly if you’re importing a lot of goods in a single move to sell over the coming months.
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How does postponed VAT accounting work?
If you’re using the postponed VAT accounting system, you need to state this on your customs declaration when importing your goods.
There are two ways you can fill this out on your customs declaration form.
The first uses the CHIEF (Customs Handling of Import and Export Freight) system. Using this, you will need to enter:
- your EORI number, which will need to be entered into box 8 (Header Consignee) or box 44 (Registered Consignee), depending on which option is applicable to your business.
- ‘G’ as the method of payment in Box 47e.
If you don’t already use CHIEF, you can apply to this system on the gov.uk website here. However, in order to use this, you’ll also need to get commercial software that can also submit CHIEF declarations which are listed here.
If you don’t use CHIEF, you can state your use of postponed VAT accounting using the customs declaration service.
To do this, you’ll need to enter your VAT registration number header level in data element 3/40. This will then be recorded against your EORI at the declaration level.
There are cases in which you can use the postponed VAT accounting system to claim for someone else or have another company such as a freight forwarder, customers agent, or fast parcel operator claim on your behalf. Full details about who can be used to import goods on your behalf can be found on the gov.uk website.
Whatever option you use, make sure that you’re 100% confident before you submit your customs declaration, as this cannot be changed once it’s submitted.
Who is eligible for postponed VAT accounting?
Postponed VAT accounting is available for any registered business importing goods for business use into the UK.
The “business use” is an important caveat to remember here. If you’re importing goods that aren’t related to your business, you can’t use the postponed VAT accounting system. It’s the same line of reasoning that you can’t claim the tax back for items you purchased outside of your business, like a nice new TV for yourself.
If your business isn’t registered for VAT, then you can’t use the postponed VAT accounting system.
By law, a business only needs to be registered if they are a business that’s actively selling goods or services that are not exempt. You also need to live in the UK, or have your business based in the UK, and have an annual turnover of more than £85,000.
However, that’s just the legal requirement for when you must be VAT registered. Any business can voluntarily register – which could bring a range of benefits to your company. Find out more about VAT, why you might want to register, and how to do it in our complete guide here.
Are you importing goods less than £135 in value?
If you’re importing goods into the UK that are less than £135 in value, then a different set of importing rules will apply, in which VAT will be charged and accounted for at the point of sale.
However, you can choose to use postponed VAT accounting on goods of any value, including ones below £135.
Adding postponed VAT accounting to your VAT return
After you’ve stated that you’re using postponed VAT accounting on your customs declarations, you need to make sure that you include them in your annual VAT returns. Overwise, you could be facing some hefty penalties for avoiding paying.
On your return, you’ll need to state:
- The total amount of how much postponed VAT you owe in box 1 of your return;
- The total amount of how much VAT you can reclaim on imported goods in box 4;
- The total ex-VAT value of imported goods in box 7.
The key to getting this right is to keep a detailed record of all your imports and VAT. Now, this could mean hours of trawling through receipts and customs forms, or you could track everything easily and accurately with accounting software.
Not only will accounting software help you keep track, but it’ll also help you keep an accurate record of your books and make your end-of-year accounting a breeze.
Not using accounting software yet? Our reviews of the best accounting software on the market can help find your perfect match.
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Which Accounting Software Is Right For You?
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If you’ve never used accounting software before, FreeAgent is one of the best platforms that you can get started on.
Incredibly intuitive and easy to use, getting to grips with FreeAgent is a lot quicker and simpler than you’ll find anywhere else.
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Quickbooks is one of the best accounting software solutions out there and makes a great match for a range of SMEs, including both sole traders and limited companies.
It has a good range of features, including VAT submissions, at an incredibly cost-effective price, making it a great option no matter what your budget is.
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Designed with small businesses in mind, FreshBooks is great accounting software with a great range of features all under one roof.
This includes time-tracking, invoicing, and more – making it perfect for businesses that operate a client-based modal.
However, Freshbooks isn’t as easy to use as FreeAgent or Quickbooks, and with a recent visual update to their platform, some information and guides about how to use it are a little out of date.
Our Business4Beginners rating: 9.2/10. Read the full review here.
Are you required to use postponed VAT accounting on your imported goods?
No, you don’t have to use postponed VAT accounting on your imports. This is an optional system – so you can choose not to use it at all.
However, postponed VAT accounting is a great benefit to your cash flow. Rather than having to pay tax upfront on your imports, you can wait until your annual VAT return to settle them as part of your overall payment.
This means you won’t have any extra unexpected costs when importing goods and can make your returns easier, especially if you use accounting software to monitor and record your imports.
If you do want to use postponed VAT accounting, you’ll need to declare it on your customs declaration. If you don’t, proceed as normal. Just be aware that once you submit your customs declaration, it cannot be changed. So make sure you’re confident in which way you choose.
The best business advice under one roof
With this guide, you’ll know everything there is to know about postponed VAT accounting.
If you’re looking for more advice or accounting information, we’ve got you covered at Business4Beginners with the top tips, ideas, and information you need to help your business succeed.