Following the end of the transition period between the UK and European Union on 31 December 2020, there have been additional complications to the treatment and procedures involved in importing goods from Europe. Prior to 31 December 2020, goods imported from Europe were accounted for on VAT Returns as “EC Acquisitions” with the Domestic Reverse Charge (20% VAT on Expense) applying to relevant vatable imports. This meant UK businesses would in effect reclaim and account for VAT in the same VAT return since the VAT would appear in both Box 1 and Box 4 of the VAT Return.

However, following Brexit and the end of the transition period, goods bought from the EU are treated as imports in the same way as goods bought from anywhere else in the world. As a result, the VAT on them would have to be paid before they can clear customs. This poses a cash flow problem for small and medium enterprises for whom cash flow is crucial. Consecutive lockdowns, spiraling energy prices resulting from the war in Ukraine and the cost-of-living crisis depressing demand in certain sectors have made cash flow all the more important at present.

Since 1 Jan 2021, there is an alternative scheme available to VAT registered businesses in the UK. Where the value of goods imported exceeds £135, they can register for the Postponed VAT Accounting (PVA) scheme. The mechanics of how VAT will be accounted for remains the same in the sense that the figure will appear in box 1 and box 4. However, the benefit is that an actual payment of VAT will not be required to allow the goods to clear customs.

However, there are some red tape requirements to register for the PVA scheme such as having an EORI number, completing CDS formalities and making sure any agent which you use to import goods is aware that you’re using the PVA. Once registered with HMRC for PVA, you will be able to download monthly Postponed VAT Import statements which show how much VAT to include in your VAT Return. This statement will also need to be held as supporting documentation for claiming VAT on imports. An alternative to PVA is paying the VAT upfront at customs and subsequently reclaiming it in your VAT Return but even this requires a form C79 from HMRC hence either way, paperwork and form-filling requirements will be incurred.

Cheylesmore Accountants can alleviate much of the bureaucracy required in setting up the foundation to either register with HMRC for the Postponed VAT Accounting scheme or getting the C79 certificate. With a host of clients involved in the import and export of goods from other countries, our experience positions us ideally to act in a manner that bestows the maximum benefit for you in terms of cash flow and strategy.