Deal or no Deal? Changes to accounting process for Import VAT in a No Deal Brexit

24th September 2019

With Brexit, there appears to be more unknowns than knowns at this moment in time.  Will a new deal be proposed in writing by the UK Government by the deadline of the 30th September? Is the 31st October deadline achievable with a ‘Deal or No Deal’ scenario and are both still standing as viable possibilities?

Whatever the case, it’s vital that businesses prepare themselves for the possibility of a no deal Brexit. Our VAT specialist, Jessica Mason, has outlined the considerations surrounding VAT regulations in the case of a no deal.

How things work currently

The UK, whilst a member of the European Union, benefits from operating under EU VAT regulations. If you purchase goods from a supplier located in Germany for example, there is no German VAT charged on the supply, and you do not need to pay any VAT on the arrival of those goods into the UK.  You are currently required to account for acquisition VAT on your quarterly VAT return, however you also reclaim the VAT back on the same return, thereby leaving your business in a nil net VAT position.  This also avoids the necessity for the German supplier to register for VAT in the UK.

However, if the UK exits the EU without a deal and/or enters a transition period, the purchase, acquisition and movement of goods from suppliers that are located within the EU will fundamentally change from a VAT perspective.

What happens when we leave the EU? 

In theory, when we leave the EU, we will be required to follow the import VAT regulations currently used when importing goods from countries outside the EU. These regulations mean that import VAT is payable upon the arrival of goods into the UK and is, in most cases, due before the goods can clear customs.  Import VAT must also be listed on a C79 statement, a form sent to businesses on a monthly basis, used to support the recovery of import VAT paid. 

However, under these regulations, businesses could face significant cash flow issues as they will need to find money upfront to pay the import VAT, unless they are approved to defer payment.

To ease the transition and reduce this impact on cash flow, HMRC has introduced temporary changes to the way in which import VAT will be collected.  The new process, referred to as ‘postponed accounting’, will mean businesses will account for Import VAT via their VAT return, rather than paying it to HMRC when the goods enter the UK. Businesses will also continue to reclaim this VAT back via their VAT return in the same period, thereby bringing the net VAT position to nil.

Import

What does my business need to do to effectively implement the ‘postponed accounting’ process?

To utilise postponed accounting for import VAT, companies must have been allocated, or have applied for, an EORI number and been approved to use Transitional Simplified Procedures (“TSP”). 

Businesses must then report the import VAT due in the following boxes on their UK VAT return:

Box 2     VAT due in the period on imports accounted for through postponed accounting

Box4      VAT reclaimed in this period in purchases and other inputs (including imports)

Box 8     Total value of all exports of goods (excluding any VAT)

Box 9     Total value of all imports of goods (excluding any VAT)

The C79 statement will continue to be a requirement as evidence to support the reclaim of the import VAT. 

If you would like to discuss any aspect of postponed accounting for import VAT or any other VAT implication of a no deal Brexit on your business, then please contact Jessica Mason on Jessica.Mason@hboltd.co.uk

Our next Brexit blog will cover Transitional Simplified Procedures and explain them in more detail. Keep an eye on our Brexit series for more information.