After Brexit, companies that brought products into the UK from anywhere in the globe had to pay tax at the border. This has increased the pressure on cash flow while posing several hurdles for enterprises. The UK government put in place a new postponed VAT accounting system to avoid this circumstance. Let's discuss postponed VAT accounting definitions and how to get a statement for your company.
Source: https://bbcincorp.com/offshore/articles/postponed-vat-accounting-uk
What exactly is delayed VAT accounting?
Businesses can use delayed VAT accounting to account for import VAT. "Postponed accounting" or "postponed import VAT accounting" are other names for this.
Since Brexit, imports from the EU additionally need VAT payment from UK businesses on any purchases that exceed £135 from non-EU nations. The money is paid up front, and it will be returned subsequently.
This has a big impact on UK firms or enterprises who are registered for VAT since they have to pay the import VAT to prevent having their products held at customs, which has a negative cash flow effect.
Businesses can choose not to pay tax right away by using postponed VAT, which allows them to disclose and record import VAT on the VAT return. Keep in mind that import declaration deployment differs from import VAT postponement. The import declaration delay is the time it takes you to give HMRC all the necessary information about your products (up to 175 days).
How delayed VAT account will help your business
Delaying VAT accounting only improves cash flow temporarily, thus there are no long-term advantages to this.
For instance, a company imported products on January 9, 2022, and their VAT quarter ends on March 31, 2022. The earlier regulations required that import VAT, let's say £20,000, be paid beforehand.
As a result, the company will have a £20,000 cash flow shortfall. On its subsequent VAT return for the tax year ending March 31, 2023, which isn't due until May 7th, the company may claim this.
The deficit will thus persist for a while. However, as there is no upfront payment necessary for the postponed VAT accounting procedure, there is no cash flow loss associated with this VAT.
What situations does the delayed import VAT accounting apply to?
Every firm that is registered for VAT in the UK and imports products into the country for commercial purposes must follow the postponed VAT accounting rules. Anyone can start utilizing the program at any time and right away; no application or approval is required.
Due to Northern Ireland's continued membership in the EU VAT area, it's important to keep in mind that distinct laws in this situation apply to the region.
Also keep in mind that if a firm is below the VAT threshold but hasn't registered for VAT yet, they must do so in order to postpone paying import VAT.
Does delayed VAT accounting have to be done?
No, employing delayed VAT accounting is wholly voluntary.
Postponed import VAT accounting is only necessary if the business utilized the original six-month customer deferral term following the conclusion of the Brexit transition period.
Alternately, if the firm so chooses, they may implement the postponed VAT accounting plan or pay the VAT up front at the port of entry when the products enter the UK and then recoup it later.
Businesses must acquire monthly C79 (import VAT certificates) reports from HMRC if they choose not to optimize their cash flow by using the postponed VAT accounting procedure.
Making an import declaration for postponed VAT
Earlier than stating the claim
Make sure your company receives an EORI number prior to filing the VAT import statement. Customs officials in the UK use an identifying system called EORI. It is necessary for both the importation of commercial products into the UK and the exportation of commodities from the area to other parts of the world.
Delay VAT on VAT Return
If you delayed the VAT on your imports, you must disclose it on your VAT Return. You can go in to the government website and continue delaying the payment of VAT on the VAT return.
The Customs Declaration Service (CDS) customs system allows you to get your VAT statement, which includes delayed VAT payments from a certain time period. The following boxes on your VAT Return can be filled in after you have your statement on hand:
Box 1
Include the VAT owed for this time frame resulting from delayed VAT accounting. The monthly statement described above contains this information, which is retrievable.
If you delayed making your disclosure and do not have the statement, you must make an educated guess at the amount.
Include in Box 4 the VAT that was reimbursed for imports under the postponed VAT plan during this time. If you delayed your import declaration and do not possess a statement, this amount must also be approximated, just like in Box 1.
Include the entire dollar amount of all product imports at this time, excluding VAT, in box 7.
Keep in mind that you will only input the values in boxes 4 and 7 if you decide not to utilize the postponed VAT system for some imports.
On the UK government website, you may also discover further details about how to complete and submit your VAT Return.
Put off the VAT on the Custom Declaration
Your EORI Number must typically be entered on your customs declaration and begins with the letters GB for Great Britain or XI for Northern Ireland.
Additionally, you must supply your UK VAT number (VRN). Your method of payment must be entered in Box 47e. The letter "G" must be typed in this section if you want to delay VAT accounting. When you do this, customs won't detain your items but will make a notation that the import VAT will be compensated for later.
On the UK government website, you may sign up for the Customs Declaration Service.
Many firms opt to have transporters or customs agents handle this task for them due to the intricacy of customs declarations. After that, you must make sure the agent is informed of your request to defer payment of the VAT.
Northern Ireland's delayed VAT accounting
Things are changing a little bit with Northern Ireland in terms of postponed VAT accounting. Because Northern Ireland remains a part of both the UK and the European VAT region, it has a special VAT and customs arrangement:
imports into Northern Ireland from the EU
These are regarded as intra-community acquisitions and supplies. As a result, postponed VAT accounting is unnecessary and not applicable; the Reverse Charge procedure will be used in its place.
Northern Ireland and the rest of the UK's goods transportation
The purchases and sales of the items are regarded as domestic. There is no need for delayed VAT accounting, nevertheless. This will follow the typical UK VAT process.
However, Northern Irish companies still have to use the postponed VAT accounting system for imports from any non-EU nation.
Conclusion
To alleviate businesses of the stress of importing products and the effects on their cash flow as a result of Brexit, postponed VAT accounting was devised. To ensure the success of your company and minimize any bad effects, you should be aware of the program and how to get your VAT postponed appropriately.
If you have any questions, get in touch with BBCIncorp, and we'll be happy to help you out. Send us a note or get in contact with us at service@bbcincorp.com, and we'll get back to you right away.
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