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Kirk Rice Blog

VAT On Imports After The Brexit Transition Period EndsWritten on November 18, 2020 by Kirk Rice LLP

Taxing Times Questions

The Question:

On the 1 January 2021, the transition period or Brexit will be over, and the UK will, for better or worse, finally be out of the EU. But what does this mean for business which trade internationally in goods? And in particular VAT on imports.

Kirk Rice LLP answers:

How does VAT on imports work at the moment?

At the moment, there are two situations:

  1. Goods coming into the UK from outside the EU – on these goods import duty and VAT are levied (please note that the VAT is levied on the value of the goods and the duties charged) and this must be charged before the goods are allowed to clear customs into the UK. If you import a lot you might have set up a deferral account meaning you pay the import duties and VAT on all of your imports for a month in one go via direct debit rather than have lots of smaller payments every time here is an import made. For the VAT suffered on import, the company will receive, monthly, a C79 certificate from HMRC. This certificate is backup for the company to reclaim the VAT on their VAT return in the normal way
  2. Goods coming into the UK from other EU member states – these goods do not attract import duty or VAT when they enter the UK (as long as they are being provided to a VAT registered business in the UK) due to the free movement of goods within the EU. For VAT purposes these goods are provided under something called the reverse charge, this means that the customer (the VAT registered business I the UK) accounts for the sales VAT due on these goods on their own VAT return (essentially on behalf of the supplier). Then they can reclaim that VAT as purchase VAT suffered in the normal way.

How will it work after the end of the transition period?

After the end of the transition period, there will be no distinction between goods being imported from the EU and goods being imported from outside the EU; they will all simply be goods being imported into the UK. This will mean that all goods would revert to being treated in the same way as goods being imported from outside the EU (i.e. have VAT and Duties levied when they enter the UK). However, the implications would be significant due to hold-ups at customs and cashflow implications on many businesses. To prevent this, HMRC will be introducing a new system called ‘postponed VAT accounting’. Under the new system, a VAT registered business will not have to pay the VAT on import and later reclaim it on a VAT return but instead will simply account for the VAT on their VAT return in much the same way as imports from the EU under the reverse charge currently operates (although there will be no entry in box 8 of the return).

The postponed accounting or VAT will be applicable when a VAT registered business imports goods into:

  • Great Britain (England, Scotland & Wales) from anywhere outside the UK
  • Northern Ireland from outside the UK and the EU (currently there will be no changes to the treatment of VAT for movement of goods between Northern Ireland and the EU)

There is no need to get authorisation to apply the postponed accounting; you can simply do it if:

  • the goods you import are for use in your business
  • you include your EORI number starting with ‘GB’ on your customs declaration
  • you include your VAT registration number on your customs declaration if it’s needed

As you can see from the second point above, businesses must include their EORI number as well as their VAT number on the customs declaration when making an import. As such, it is very important that the VAT registered business doesn’t already have one they should register for an EORI number (https://www.gov.uk/eori) as a matter of urgency before the end of this year. The process is quite simple and takes no more than 10 minutes.

Please note that it will not be possible to use postponed accounting for imports made under authorisation to use simplified declarations for imports, where simplified frontier declarations are made before 1 January 2021. This will be the case even if the supplementary declaration is made after this date.

Different rules apply to goods in consignments not exceeding £135, HMRC has advised that further guidance on this will be coming at a later date.

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How does this get reported on our VAT return?

After the goods have been imported, it will be necessary to account for import VAT on the next VAT return. An online monthly statement will be available to download and keep for the business records. This will show the total import VAT postponed for the previous month that should be included on the VAT return.

Due to postponed accounting, there will be changes to how the VAT return should be completed:

  • Box 1 must include the VAT due in the period on imports accounted for through postponed VAT accounting.
  • Box 4 must include the VAT reclaimed in the period on imports accounted for through postponed VAT accounting.
  • Box 7 must include the total value of all imports of goods included on the online monthly statement, excluding any VAT.

For businesses that are eligible to defer their customs declarations (for example, where the business makes supplementary declarations), import VAT must be declared on the VAT return which includes the date that the goods were imported. To complete the boxes on the VAT return, it may be necessary to estimate the import VAT due from the records of imported goods.

When submitting a deferred declaration, the next online monthly statement will show the amount of import VAT due on that declaration. It should then be possible to adjust any previous estimate and account for any difference on the next VAT return.

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If your business trades goods internationally and you would like to discuss the impact of Brexit on the VAT on imports please email info@kirkrice.co.uk to arrange a call with one of the team.

Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The information is based on current tax legislation which may change in future. The FCA does not regulate tax and trust advice.

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