Before the UK left the EU, VAT was often paid upfront when your goods arrived at the border. Ouch. That was a serious hit to your cash flow, right?
Postponed VAT Accounting (PVA) is a crucial system HMRC put in place to ease that pain. It’s actually pretty simple when you look past the complicated name. PVA lets UK VAT-registered businesses declare and recover the import VAT on their regular VAT Return. Instead of having to pay it to Customs right when the goods arrive.
If you’re wondering whether Postponed Vat Accounting is something you should be using or if you’re already using it but not quite sure how it works, this guide is for you!
Here, you’ll get to know:
- What Is Postponed VAT Accounting,
- How Does Postponed Accounting Work,
- Who Can Use Postponed VAT Accounting,
- And Much More…
Let’s break it down!
What Is Postponed VAT Accounting?
Postponed VAT Accounting (PVA) is a scheme for UK VAT registered businesses that import goods from anywhere in the world. Instead of paying the import VAT upfront at the UK border, you can declare and recover it on the same VAT return. For most businesses that can reclaim all of their input VAT. This means no money actually changes hands, which provides a significant cash flow benefit.
The system was introduced in 2021 to simplify the process of accounting for import VAT after Brexit, especially for businesses that were used to the reverse charge mechanism for intra-EU trade.
Postponed VAT Accounting Example
Here is an example of how Postponed VAT Accounting works for a fully taxable business:
Scenario: A UK business imports £10,000 worth of goods. The import VAT due on this amount is £2,000 (20% of £10,000).
Without PVA:
- The business would pay £2,000 to customs when the goods arrive.
- The business would then have to wait until its next VAT return to reclaim the £2,000.
With PVA:
- The business does not pay the £2,000 to customs upfront.
- Instead, on its VAT return for that period, it makes the following adjustments:
- Box 1: Add £2,000 to the total VAT due.
- Box 4: Add £2,000 to the total VAT reclaimed.
- Box 7: Add £10,000 (the net value of the goods) to total purchases.
The £2,000 added to Box 1 is cancelled out by the £2,000 added to Box 4, meaning the business has no negative impact on its cash flow.
Who Can Use Postponed VAT Accounting?
The great news is that PVA is incredibly accessible.
It’s available to any business that is registered for VAT in the UK and imports goods for use in their business.
- You don’t need to apply for special approval from HMRC.
- You don’t need a guarantee or security, which was often required for the old VAT deferment accounts.
- It works for imports from the EU and the rest of the world.
There are only a couple of small exceptions and special cases, which we’ll touch on later. Essentially, if you’re a VAT-registered UK business, you’re almost certainly good to go.
How Does Postponed VAT Accounting Actually Work?
When importing goods, you need to follow these steps:
1. Inform Your Customs Agent
The first and most crucial step is communicating with your freight forwarder or courier. You must explicitly instruct them in writing that you want to use PVA for a particular import shipment. To make the customs declaration, they will need your UK VAT registration number and your Economic Operators Registration and Identification (EORI) number.
2. Access Your Monthly Statement
After the import, you will not receive the old C79 certificate that confirmed VAT paid at the border. Instead, you must log into the Customs Declaration Service (CDS) via your Government Gateway account to download a monthly Postponed Import VAT Statement (MPIVS). This statement provides a detailed breakdown of all the import VAT you postponed in the previous month.
These statements are only accessible for six months. Therefore, it is important to download and save a copy every month for your records.
3. Complete Your VAT Return
When it is time to file your next VAT return, you use the information from your monthly MPIVS to complete three specific boxes:
- Box 1 (VAT due on sales): Add the total import VAT from your statement. This increases your total VAT payable.
- Box 4 (VAT reclaimed on purchases): Add the exact same amount. This increases your total VAT reclaimable.
- Box 7 (Total value of purchases): Include the total net value of the goods you imported.
For a business that can reclaim all its VAT, the amount added to Box 1 is immediately cancelled out by the amount in Box 4, resulting in zero net cash impact on the import VAT.
How Do I Complete My VAT Return If I Use PVA?
Let’s understand the VAT return process in more detail. You’ll be entering the amounts into three key boxes:
| VAT Return Box | What to Include (from your PIVA statement) | Why? |
|---|---|---|
| Box 1 | The total VAT due on imports accounted for using PVA. (This is the output tax). | You are declaring the VAT you owe to HMRC. |
| Box 4 | The total VAT reclaimed on imports accounted for using PVA. (This is the input tax). | You are reclaiming the VAT you just declared, assuming you're fully VAT-recoverable. |
| Box 7 | The total value of the goods imported, excluding VAT. | This represents the total value of your imports for the period. |
Make sure you download your monthly postponed import VAT statement from HMRC. It shows the VAT amounts you need to include in your return..
Explain Pros And Cons Of Postponed VAT Accounting
Pros of Postponed VAT Accounting
1. Improved Cash Flow
By deferring the payment of import VAT, businesses can retain cash within the company for a longer period. This is particularly beneficial for small and medium-sized enterprises (SMEs) that rely on tight cash flow management.
2. Simplified VAT Management
PVA consolidates VAT accounting by allowing businesses to declare and recover import VAT on the same VAT Return. This reduces administrative burdens and the need for separate payments at the time of each import.
3. Enhanced Competitiveness
With improved cash flow and simplified processes, businesses can operate more efficiently and competitively in the market. This is especially advantageous for companies engaged in international trade.
4. Reduced Risk of Errors
Since VAT is accounted for on the VAT Return, there’s less risk of errors associated with multiple VAT payments and claims. This contributes to better compliance and fewer discrepancies.
Cons of Postponed VAT Accounting
1. Need for Accurate Record-Keeping
Businesses must maintain detailed records of imports, including customs declarations and invoices, to ensure accurate VAT accounting. Inaccurate records can lead to errors in VAT Returns and potential compliance issues.
2. Potential for Cash Flow Challenges
While PVA improves cash flow by deferring VAT payments, businesses must still ensure they have sufficient funds to cover VAT liabilities when the VAT Return is due. Poor cash flow management can lead to difficulties in meeting VAT obligations.
3. Complexity for New Importers
For businesses new to importing, understanding and implementing PVA can be complex. Proper training and possibly professional advice may be necessary to use the system effectively.
When Can You Use Postponed VAT Accounting?
You can use PVA if:
- Your business is registered for VAT in the UK.
- You import goods (from the EU or non-EU countries) for use in your business.
- You use the Customs Declaration Service (CDS) to make your customs declaration and select the PVA option on the declaration.
- You are the owner of the goods or have the right to dispose of them.
How Can Postponed VAT Accounting Help Small Businesses?
PVA is particularly beneficial for small businesses as it provides a major boost to cash flow.
- Eliminates Upfront Cost: Without PVA, a business importing £50,000 worth of goods would have to pay £10,000 in import VAT upfront. With PVA, this cash stays in the business.
- Improves Working Capital: By deferring the VAT payment until the VAT return is filed (which could be up to 3-4 months later), a small business can use that capital for operations, marketing, or other investments.
- Reduces Administrative Burden: It removes the need to track an upfront payment and then wait for an official C79 certificate to reclaim the VAT. Thus, simplifying the accounting process for import VAT.
Using PVA When Someone Else Imports For You
If you have a freight forwarder, customs agent, or a courier like FedEx handling your goods, you need to be clear with them. You must give them written permission to use PVA on your behalf. This instruction, along with your VAT and EORI numbers, is essential. Remember to keep a copy of your instructions for your own records.
You’ll need to make sure you have an agreement with them that PVA will be used for the import
What If The Overseas Supplier Handles The Whole Import Process?
This can get tricky.
If the supplier arranges the import and the goods are delivered to you, you need to check who is listed as the importer on the customs declaration.
- If you are the importer, you can use PVA.
- If the supplier is the importer, you can’t use PVA. They’ll handle the VAT, and you’ll be charged VAT as part of the sale.
Always clarify this with your supplier before the goods are shipped.
Special Cases With Royal Mail And Unknown Values
There are a couple of specific scenarios to be aware of:
- Royal Mail deliveries: For most commercial goods over £135 arriving through the regular postal service, you can’t use PVA. Royal Mail will collect the VAT from you directly before delivering the package. However, if you are using one of Royal Mail’s commercial courier services, you can arrange to use PVA with them.
- Unknown customs value: Sometimes, you might not know the final customs value of a shipment when it arrives. You can still use PVA for the amount you know, but you will need to use a guarantee to cover the VAT on the unknown portion.
How To Use PVA On Your Customs Declaration?
To tell HMRC that you’re using PVA for an import, you must:
- Make sure your VAT registration number is entered correctly in the customs declaration.
- Ensure that the declaration for the imported goods is made via the Customs Declaration Service (CDS).
- After submitting the declaration, you will get an online monthly statement showing the import VAT you postponed. You must download and keep these statements for your records.
Is Postponed VAT Accounting the Same as Reverse Charge?
No, but they are somewhat similar in concept.
- Postponed VAT Accounting (PVA) applies to imports of goods into the UK. It lets you account for import VAT on your VAT Return instead of paying it upfront at the border.
- The Reverse Charge, on the other hand, usually applies to domestic or cross-border supplies of services (and some goods) within the UK or EU, where the buyer, not the seller, accounts for the VAT.
So, in short:
- PVA = imports of goods
- Reverse charge = certain services or specific goods (like construction or telecom)
Both aim to simplify VAT handling and prevent cash flow disruption, but they’re used in different situations.
Postponed VAT Accounting and Deferment Account
A Deferment Account (also known as a Duty Deferment Account or DDA) is used to delay customs duty and import VAT payments by about 30 days, rather than paying immediately at the border.
Postponed VAT Accounting, however, removes the need to pay import VAT at all at the border. You declare and recover it on your VAT Return instead.
So:
- Deferment Account = temporary delay (still involves paying import VAT).
- Postponed VAT Accounting = no upfront payment (you account for VAT on your return).
Many businesses now prefer PVA over a deferment account because it’s simpler and better for cash flow.
Postponed VAT Accounting and the Flat Rate Scheme
If you use the Flat Rate Scheme (FRS) for VAT, you can still use Postponed VAT Accounting for imports.
However, there’s a key difference in how you handle it:
- You must still include the import VAT on your VAT Return using PVA.
- But you can’t reclaim it as input tax, because businesses under the Flat Rate Scheme don’t normally reclaim input VAT (unless it’s for capital assets over £2,000).
So you can still use PVA but the benefit is limited since you can’t usually recover VAT under FRS.
Is PVA Compulsory?
No, using PVA is optional for most businesses. It is an optional scheme available to UK VAT-registered businesses importing goods from anywhere outside the UK.
Using PVA is the default and often preferred method because it:
- Improves cash flow by removing the need for an upfront VAT payment at the border.
- Allows for the immediate recovery of import VAT (subject to normal input tax rules).
However, PVA becomes mandatory if you defer the submission of your customs declaration. This is common for goods moved into a customs warehouse before being released into free circulation.
Can Northern Ireland businesses use PVA?
Yes, but the rules differ depending on where the goods are coming from.
- From the EU: Goods moving from the EU to Northern Ireland are not considered imports and don’t incur import VAT, so PVA isn’t used.
- From outside the EU: Businesses in Northern Ireland can use PVA for goods imported from anywhere outside the EU.
- From Great Britain: When goods move from Great Britain to Northern Ireland, they are treated as an import for VAT. Northern Ireland businesses can use Postponed VAT Accounting (PVA) to account for the import VAT, especially when moving their own goods.
Can I Use Postponed VAT Accounting If I’m Not VAT Registered?
No, Postponed VAT Accounting (PVA) is only available to businesses that are registered for VAT in the UK. If you are not VAT registered, you must pay any import VAT upfront at the border when your goods arrive.
Do I Need To Pay Customs Duty If I Use Postponed VAT Accounting?
Yes, using PVA only deals with import VAT and has no effect on other import charges, such as customs duty. You still need to pay any customs duty that is due on your goods. You may be able to set up a separate duty deferment account with HMRC to pay customs duty monthly.
Do I Need To Change My VAT Registration To Use Postponed VAT Accounting?
No, you do not need to change your existing VAT registration or apply for special permission from HMRC to use PVA. You are automatically eligible to use it as long as your business is VAT registered and you include your VAT registration number on the customs declaration for your imported goods.
How Do I Show Postponed Accounting On My VAT Return?
To show postponed accounting on your VAT return, you’ll need your monthly postponed import VAT statement from HMRC. You must download these online statements from your Government Gateway account, as they are only available for six months. The information from these statements is then used to update the relevant boxes on your VAT return.
The Bottom Line
Postponed VAT Accounting takes away the stress of paying VAT upfront and gives businesses more breathing room with their cash flow.
If you’re importing goods regularly, using PVA means smoother VAT returns and no waiting around to reclaim VAT later. It’s not complicated. You just need to keep your import records straight and make sure your customs declarations are accurate.
Of course, like any system, it’s not one-size-fits-all. If you’re dealing with duties or excise goods, you might still need a deferment account alongside it. But for most importers, PVA is the simpler and smarter route.
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Disclaimer: All the information provided in this article on What Is Postponed VAT Accounting? Pros And Cons Of Postponed VAT Accounting including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.