HMRC clarifies Postponed VAT Accounting requirements

The UK is scheduled to leave the EU and the EU VAT regime on 31 December 2020.

As a result, the UK will introduce a Postponed Accounting scheme for import VAT. This scheme allows all UK VAT registered businesses to declare and recover import VAT on the same VAT Return, instead of having to pay it upfront via the customs declaration and recover it later. This will ease cash flow for businesses importing goods into the UK post-Brexit.

Using Postponed Accounting

From 1 January 2021, any UK VAT registered business (resident and non-resident) with a GB EORI number importing goods for use in their business can account for import VAT on their VAT return.

Although the use of Postponed Accounting for import VAT is not mandatory, businesses that decide to defer the submission of import declarations in the first six months of 2021, are obliged to use import VAT Postponed Accounting for imports in that period.

It seems logical to also oblige companies that import small consignments (not exceeding £135 in value), in using import VAT Postponed Accounting for those consignments. However, HMRC are yet to provide further guidance on the VAT treatment of such consignments.

Completing a VAT Return

The published legislation states that any VAT registered person may postpone the accounting of import VAT to its periodic VAT return, unless if this option is revoked by HMRC.

To use the Postponed Accounting scheme, importers simply need to ensure that their VAT registration number is shown on the import declaration.

Traders using Postponed Accounting can obtain a monthly statement of all their imports that were submitted from HMRC. The relevant VAT and VAT value details should be reported in the subsequent periodic UK VAT return as follows:

  • Box 1 – Total VAT due in this period on imports accounted for through postponed VAT accounting.
  • Box 4 – Total VAT reclaimed in this period on imports accounted for through postponed VAT accounting.
  • Box 7 – Total value of all imports of goods included on your online monthly statement, excluding any VAT.

Where a VAT-registered business chooses to delay submitting their import declarations and the actual import VAT value is not known yet, an estimate of the import VAT amount needs to be accountable in the relevant VAT return. An adjustment may be required when the import declaration is subsequently filed and the actual import VAT amount is different from the provisional calculation.

Non-VAT registered businesses

For non-VAT registered businesses, postponed VAT accounting is not available. They will have to pay any import VAT due via the customs declarations.

Contacts

For any questions, please feel free to contact:

Arjen Odems,  odems@cutraco.com

Maartje Meijer, meijer@cutraco.com

The UK Global Tariff

On 19 May 2020, UK Government published the new UK Tariff schedule that will apply from the moment that the UK exits the EU.

The publication comes after a public consultation earlier in the year and the summary of the public’s as well as the Government responses can be found here.  The full UK Global Tariff schedule can be reviewed here and a full overview of the UK Tariff in CSV format is also available here.

The aim was to simplify the Tariff and tailoring it to the UK economy. The key principles for the new Tariff focus on the interest of UK consumers and business, encourage UK production as well as maintain and promote the UK’s international competitiveness.

The new UK Tariff schedule will apply from the moment that the UK exits the EU, currently planned for 1 January 2021 and that the existing EU tariff schedule will apply during the transition period. 

The key amendments that the UK will make to the existing EU Tariff include:

  • Simplifying the Tariff by removing tariffs on goods with low tariffs (below 2%), rounding tariffs to the nearest band and taking steps to simplify complex agricultural measures
  • Removing tariffs on nearly 2,000 goods where it is beneficial to lower the cost of imports for both producers and consumers
  • Retaining tariffs in several sectors to support UK businesses and meet the UK’s wider strategic objectives

UK Government have pledged that they will continue to review and improve the UK’s trade policy by means of continuous engagement with the public, key stakeholders, and advisory groups.

A key observation is that roughly 2,000 Tariff codes have been reduced to 0% and most others have been rounded down to the nearest band. Nevertheless, Tariffs still remain on the majority of Tariff codes and companies importing or planning to import products should continue to consider the new UK Tariff schedule as well as other customs facilities to manage UK customs duties.

Brexit – removal of easements

The election dust has settled and the new UK Government is taking shape. It is now becoming apparent that companies importing and exporting in the UK need to consider customs and customs compliance to its fullest extent.

The Government has recently confirmed their plans to introduce import controls on goods at the border after the transition period ends on 31 December 2020. Effectively all imports and exports will become subject to these controls, including the requirement to submit (full) customs declarations, also those arriving from EU countries.

It was also confirmed that the policy easements put in place for a potential no deal exit will not be reintroduced as businesses have time to prepare. Although no specifics were provided, the expectation is that the removal of duties for over 80% of products, the Transitional Simplified Procedure (TSP) and Import VAT postponed accounting mechanism will all be withdrawn from the EU Exit legislation and not return upon the UK’s exit from the EU on 1 January 2021.

The removal of these easements mean that companies may need to re-consider their Brexit readiness position and anticipate additional activities and cost for customs compliance as well as for deferment of duties and import VAT.

The press release from the Cabinet Office and the Rt Hon Michael Gove MP can be found here