Importing goods from the EU: Postponed VAT accounting (PVA)

Importing goods from the EU: Postponed VAT accounting (PVA)

As of the 1st January 2021, the UK is no longer in the EU and the transition period has ended. Businesses in the United Kingdom and Northern Ireland now face some new procedures and we have since been inundated with queries. This article focuses on GB businesses (England, Wales & Scotland) importing goods from EU businesses (B2B).

Pre Brexit: Up until 31st December 2020 if you imported goods from France it was termed as 'arrivals'. The French seller would obtain the customer's UK VAT number and zero rate the sale. The UK buyer would use the reverse charge to account for the VAT on their VAT return.

For clients who import goods from outside the EU, you will be familiar with the process of paying import VAT when the goods arrive in the UK and then reclaiming this on your next VAT return. In most cases the VAT is paid by the freight agent, or you may have a deferment account.

Post Brexit: As of 1st January 2021, the VAT treatment on EU purchases will change. All imports will be subject to Import VAT and duties may also apply (subject to the trade deal with the EU). The GB buyer is usually the party responsible for paying the VAT although it is possible for the seller to take responsibility if that is what has been decided.

The government has been frantic in their attempts to prepare businesses for Brexit and they have encouraged us to register for an EORI number if you do not already have one. If you still need to do this, you can register here https://www.gov.uk/eori

Postponed VAT Accounting (PVA)

Usually import VAT must be paid before the goods are released, but the main benefit of Postponed VAT Accounting is that the importer can account for import VAT on their VAT return and avoid making payment. In practical terms, your freight agent should have obtained your EORI and GB VAT numbers and they use these to allow the goods to pass through customs without payment. You are then required to account for the VAT correctly in your bookkeeping system which will process the VAT in both boxes 1 and 4 to net off any VAT charge. The net value of the purchase will also appear in box 7. We are aware that software providers are already updating their bookkeeping software to provide an easy solution to this – presumably, a new tax code similar to the reverse charge process.

If your business is partially exempt, then you will need to be aware that you cannot reclaim all the VAT in box 4 and you will have to apply the partial exemption calculation.

As an importer you are not required to register for PVA however we would recommend you do as it improves cashflow. You will access your import statements from the Customs Declaration Service (CDS) and this will need to be registered for here https://www.gov.uk/guidance/get-access-to-the-customs-declaration-service. In the middle of every month HMRC will publish the imports and VAT for the previous month. These statements will only remain online for 6 months so we recommend that you download them otherwise they will be lost.

If your business already has a VAT deferment account, the option is there to retain that and continue using that approach, but it is a good time to review whether this still works for you.

As usual if you have any questions, please do not hesitate to contact us.