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

Brexit consulting

Brexit: UK’s Future customs arrangements – a future partnership paper

After months of speculation, the UK has now published a position paper setting out the UK Government’s thinking on the future relationship with the EU. This paper, Future customs arrangements – a future partnership paper, is the first in a series of papers and focuses on UK’s aspirations for future customs arrangements.

UK’s Government acknowledges that UK traders are a key part of UK’s economy. Any new customs system should be as facilitative as possible to encourage growth in trade with the EU and the rest of the world. Furthermore, any arrangement should mitigate any additional administrative burdens or delays.

The EU Customs Union has formed the backbone of UK’s trade relationship with the EU for many years. UK’s  customs and trade provisions are fully integrated with the EU.  The options currently suggested by the UK would continue this strong relationship with the EU. It is based on ‘undisrupted’ trade between the UK and EU and simplifications for crossing borders or even removal of the need for a UK-EU customs border.  It should also provide the UK the possibility to pursue its independent trade policy objectives.

UK Government acknowledges that the ultimate customs arrangement will depend on the coming negotiation. Part of the strategy is the introduction of a transitional measure of close association between the UK and the EU. This help both sides to minimise unnecessary disruption. The paper indicates UK’s believe that the customs and trade relationship with the EU is critical and that they would likely require more time to achieve a realistic and acceptable solution.

This paper was welcomed by the EU as a positive step towards the negotiations. Furthemore, it provides valuable insights in the strategy and envisaged future relationship between the UK and the EU. However, the EU dismissed the paper within hours. Brussels noted that UK’s withdrawal from the EU – supported by the article 50 procedure – should be addressed first before the future customs relationship can be negotiated.

The next round of talks between the UK’s and EU’s representatives start later in August. It will soon become clear whether this paper will be considered in their negotiations.

For businesses, nothing has really changed yet.  Potentially the paper has created additional confusion and uncertainty due to the introduction of an interim solution before arriving at an end-state.

It is still pertinent for traders to understand the feasible scenarios and the impact these have on trade and operations in a post-Brexit situation. This will help in identifying key areas of attention, prioritise actions and resource as well as support in active engagament with government.

Introducing myself

After having worked for over 15 years in customs and international trade consulting with large consulting firms, Arjen established Customs & Trade Consultancy in 2016.

The aim of Customs & Trade Consultancy is to use Arjen’s international experience and passion for trade in providing importing and exporting companies with a pragmatic and pro-active approach in dealing with complex customs and international trade issues.

After finishing a tax law education at the University of Leiden in de Netherlands, Arjen started his professional career with Deloitte in the Netherlands. Subsequently, Arjen moved to an international role with Ernst & Young in London where he was the UK practise lead with overall responsibility for the global trade team leading various UK and international projects.

Arjen has great experience in the industry and is credible and reliable partner to advise small, midsize and large companies on customs and trade topics. His aim is to provide a flexible and solution oriented approach, which will allow companies the achieve the business objectives and improve the their compliance and effectiveness of the supply chain.

With the leadership roles Arjen fulfilled, he has built an extensive experience in various industries, including consumer goods and retail, automotive, manufacturing, logistics, life sciences and telecommunications.

Arjen’s passion is to help companies better understand the relevant requirements and allow them to maintain and permanently sustain a high level of quality and compliance. This will also allow the identification and implementation of cash (duty) savings as well as operational cost savings.