In this article, Eva and Ana talk us through the VAT treatment on imports of goods following Brexit and the introduction of the Postponed VAT accounting system by HRMC. As we know, as of 1 January 2021, businesses in Great Britain (England, Scotland, Wales) now treat EU countries like they already do countries outside the EU. But what does this mean for a SyteLine (CSI) user?
To make things simpler to explain in a blog, we’re taking a look at a scenario whereby a company based in Britain, Alpha Machines Ltd., regularly imports goods and raw materials from France.
Before Brexit
Trade with the EU was termed dispatches and acquisitions. In our example, Alpha might have received a purchase invoice from a France based supplier for £1,000 worth of goods in Dec 2020. The VAT charged on this invoice was 0% (Reverse Charge applied).
When Alpha booked the invoice into Syteline, they will have chosen the MTD Reverse Charge Tax Code option and so in the MTD tax return the transactions will appear as:
Box 2 – VAT due on acquisitions from other EC Member States = £200
Box 4 – VAT reclaimed on purchases (including acquisitions from the EC) = £200
Box 7 – Total value of purchases and all other inputs = £1,000
Box 9 – Total value of acquisitions from other EC member States = £1,000
After Brexit
Trade with EU countries are no longer called dispatches and acquisitions and instead are referred to as imports and exports. So Alpha buy goods from the same French supplier in August 2021. They receive a purchase invoice for £1000 worth of goods and the VAT charged will still appear as 0%.
However, when they book the new invoice into Syteline, they will now choose a tax code of zero-rated instead of the European Union – Reverse Charge Tax Code.
In the VAT return, the transaction will now appear as:
Box 7 – Total value of purchases and all other inputs = £1,000
Where VAT imports are concerned, Alpha now have two possible options:
1 – VAT is payable upon import
The VAT payment required to clear customs = £200. When they book the vendor invoice into Syteline, Alpha will need to choose Tax Code: Zero-rated VAT. In the MTD tax return they will see:
Box 7 – Total value of purchases and all other inputs = £1,000
As Alpha will be billed separately for the VAT amount, they will need to create a VAT only voucher in Syteline = £200. Customs will also require form C79 for this transaction.
The VAT only invoice will then need to be deducted on Alpha’s next VAT return as part of:
Box 4 – VAT reclaimed on purchases = £200
This approach will have an impact on Alpha’s cash flow as the VAT will have to be paid before the items can be cleared from customs.
2 – Use Postponed VAT Accounting (PVA)
Alternatively, Alpha can choose to not pay the VAT to clear customs. This option allows businesses importing goods into the UK to account for the input VAT and output VAT on their next VAT Return.
Firstly, Customs needs to be advised that Alpha are using PVA. They will need to include their EORI number and VAT number in all customs declarations
Secondly, a new online monthly statement (Monthly Postponed Import VAT statement or MPIVS) is available as part of the postponed VAT accounting process from HMRC. This report shows all import VAT postponed for the previous month on a transactional basis and when it needs to be included on a VAT Return – i.e. the correct tax point.
Within their next VAT return, Alpha would declare their PVA amounts. This process works similarly to Reverse Charge in the sense that you can declare the VAT as payable and deductible in the same return.
Looking at Syteline, Alpha will follow the same steps as before:
Book the purchase invoice as zero-rated vouchers using Tax Code: zero-rated
In the VAT return the voucher will appear as:
Box 7 – Total value of purchases = £1,000
Before submitting their following month’s VAT return, Alpha log in to the HMRC portal and retrieve their Monthly Postponed Import VAT Statement.
Then they just need to adjust box 1 and box 4 to declare input VAT and output VAT within their return. The impact will be zero in their VAT due amounts.
Box 1 – VAT due on sales and other outputs (Postponed VAT adjustment) = £200
Box 4 – VAT reclaimed on purchases (Postponed VAT adjustment) = £200
Note that postponed VAT accounting can now be used for all imports outside of the EU too so if a business imports goods from outside the EU, they can also benefit from this cash flow boost!
Whilst Syteline has not yet fully incorporated functionality to account for Postponed VAT in the MTD returns, it’s not a difficult process to adopt. Our suggestion to work around this issue is to either manually adjust boxes 1 and 4 in the monthly/quarterly returns or alternatively create a VAT only invoice coded to Reverse Charge Tax Code using the information provided by HMRC in your Monthly Postponed Import VAT statement.
We hope that this blog has given you some useful information. For more details about postponed VAT in general, see https://www.gov.uk/guidance/get-your-postponed-import-vat-statement
If you need more specific help with Syteline (CSI) then please feel free to contact us. We’d be happy to help.