Postponed VAT Accounting

As a consequence of the UK’s exit from the EU at the start of January 2021, the government introduced a new mechanism for dealing with VAT on the importation of goods into the UK.

Under the previous system, when consignments of goods with a value in excess of £135 were imported, UK VAT was charged on them. The importer was required to pay this over to HMRC prior to the goods clearing Customs. A C79 document would be provided to the importer to allow the input VAT paid to be reclaimed on VAT returns.

The new mechanism is known as Postponed VAT Accounting. Any importer of goods is eligible to join this scheme and to do so it must ensure that it obtains access to the scheme via its Government Gateway account (Business Tax Account).  A document then needs be downloaded from HMRC’s system which shows the VAT which is due on the goods imported; however payment does not need to be made in order to allow the goods to clear Customs. Without the downloaded document, businesses are not able to use the Postponed VAT Accounting system. Documents are only available to download from HMRC’s system for 6 months.

Imports not covered by the Postponed VAT Accounting system  are dealt with under the previous ‘C79’ system.

The VAT administration is similar to the reverse charge procedure, in that the VAT needs to be entered in the output VAT and input VAT boxes of the VAT return. For businesses which are not partially exempt, no VAT is payable to HMRC as a result.

The advantage of using the mechanism, is that the businesses do not suffer the cash flow disadvantage of paying the VAT to HMRC and then waiting until a VAT return is submitted before being able to reclaim the VAT.