VAT update: Accounting for import VAT on VAT returns from 1 January 2021 onwards

Published: Thursday 13 August 2020

Following the UK’s exit from the EU, the transition period comes to an end this year and various changes will come into effect from 1 January 2021. For businesses registered for VAT in the UK, one change means they will now be able to declare and recover import VAT on the same form rather than paying upfront and claiming later – a welcome reduction in admin for many!

What is changing?

At present, when goods are imported into the UK from a non-EU member state, the importing business or its agent must pay the import VAT to HMRC in order that the goods can clear Customs and be put into free circulation in the UK. The import VAT paid in any month is confirmed by HMRC on a C79 certificate which serves as the evidence for the importer to reclaim the VAT paid through its VAT return. There may, however, be a time lag of up to 3 – 4 months between paying the import VAT and subsequently recovering it from HMRC.

With effect from 1 January 2021, import VAT will be dealt with by postponed accounting in essentially the same way as an acquisition of goods from another EU member state is currently processed. The UK importer will treat itself both as the supplier and recipient of the relevant goods, and on the same VAT return will declare output tax on the value of the goods, and reclaim as input tax (in accordance with the normal rules) the VAT notionally charged. This means there will no longer be any physical outflow of cash required.

The only difference from the current EU acquisition process is that the output tax will be declared as part of the total in Box 1 of the return, not separately in Box 2.

An online monthly statement from HMRC will be available for businesses to download and retain. It will show the total import VAT postponed for the previous month. The figure from the relevant monthly statements should be included on the VAT return as follows:

Box 1

Include the VAT due in the period on imports accounted for through postponed VAT accounting.

Box 4

Include the VAT reclaimed in the period on imports accounted for through postponed VAT accounting, after taking into account any partial exemption implications.

Box 7

Include the total value of all imports of goods included on the relevant online monthly statements, excluding any VAT.

Who will be affected?

All VAT-registered businesses that import goods into the UK from 1 January 2021 onwards.

When does it take effect?

1 January 2021

Are there any exceptions?

If a business is eligible to defer its customs declarations, it must account for import VAT on its VAT Return for the period that includes the date that the goods were imported. To complete the boxes on the VAT Return, an estimate of the import VAT due will need to be made from the business’s records of imported goods. When the deferred declaration is submitted, the next online monthly statement will show the amount of import VAT due on that declaration. The business will then be able to adjust its estimate and account for any difference on its next VAT Return.

Actions required

A business does not need to be authorised to account for import VAT on its VAT Return and can start doing so from 1 January 2021. It can account for import VAT as described above if:

  • the goods are for use in its business;
  • the business includes its EORI number, which starts ‘GB’ on its customs declaration; and
  • the business includes its VAT registration number on its customs declaration, where needed.

If goods are initially entered into a customs special procedure, the business can account for import VAT on its VAT Return for the period when the declaration that releases those goods into free circulation is submitted.

For more information on accounting for import VAT on VAT returns or other indirect taxes advice, please get in touch with Julian Millinchamp at julian.millinchamp@hazlewoods.co.uk or 01242 237661.

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Julian Millinchamp
Julian Millinchamp
Indirect Tax Director
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