So we’re here – the Brexit transition period has ended. As of 1 January 2021 there are changes to how you have to account for import VAT.
This means any UK VAT-registered business that imports goods into the UK from anywhere in the world will need to adapt to a new way of completing their VAT returns.
You can now make use of Postponed VAT Accounting, meaning you can account for the import VAT on your VAT return, rather than having to pay it immediately. Although adapting post-Brexit might feel confusing and overwhelming, don’t worry, this change is helpful. It’ll save you time and allow you to manage your cash flow more efficiently.
You are eligible for this option if:
- You’re a UK business, registered for VAT
- You import business goods to the UK valued at more than £135 (exclusive of VAT)
Alternatively, if you can’t or don’t want to use this method, you can choose to pay import VAT on importation. If you choose to do this, you can reclaim the VAT incurred on the imported goods you own as input tax subject to the normal rules.
The first VAT return using Postponed VAT Accounting will be due in March 2021 – here’s how it’ll work
You will account for postponed VAT on the return for the accounting period which covers the date you imported the goods. The normal rules about what VAT can be reclaimed as input tax still apply, and your monthly statement will contain the information you’ll need to support your claim.
You’ll need to include the following in your VAT return:
- Any customs entries you have made in your own records
- Copies of your monthly postponed import VAT statement, when available
The first VAT return offering Postponed VAT Accounting will be due in March, if your VAT period end is 31 January 2021. You will need to:
- Elect to use Postponed VAT Accounting on the customs declaration
- Use your own VAT registration and EORI numbers on the customs declaration
Postponed VAT Accounting in Xero
Xero users are in luck. Xero have already developed an update to account for Postponed VAT Accounting. They have said “It will be released well before you need to deal with your first VAT Return in the new year. The new functionality will be automatically available at no extra cost to Xero customers who use Making Tax Digital (MTD) or the new non-MTD VAT. Flat rate and old non-MTD VAT Returns will not have PVA functionality”.
When you’re creating a VAT return in Xero, you’ll need to:
- Select the ‘PVA option’ button and add the amount from your MPIVS.
- Xero will populate your VAT return automatically
If any of this feels confusing, we’re here to help
Once clients start using PVA, we’ll likely be releasing more information and instructional videos to help you go about it in Xero. Until then, if you’re concerned or confused about any of the changes coming post Brexit transition period, let us know. Your question may help others as well as yourself!