Introduction of postponed accounting
Jan Garioch CA discusses HMRC's Guidance on import VAT issued on 27 July 2020.
Introduction of postponed accounting
From 1 January 2021, UK VAT registered businesses can account for VAT on imported goods in their VAT returns. This is termed postponed accounting and applies regardless of where in the world the goods have been imported from. This change brings the cash flow benefit to traders of being able to declare and recover (subject to the normal rules) import VAT in the same VAT return. There will be a consequent cash flow disadvantage to the Treasury, and it is also possible that the opportunity for fraud could increase. Since EC sales lists will no longer be required, it may be more difficult for HMRC to spot fraud.
How to start using postponed accounting
There is no requirement to obtain permission to apply postponed VAT accounting. Except for businesses which submit an authorised simplified declaration before I January 2021, VAT registered businesses can apply postponed accounting from that date provided the imported goods are for use in their business and they have included their Economic Operators Registration and Identification (EORI) number on their customs declaration. VAT must be accounted for in the VAT return which includes the date on which the goods are imported.
Consequently, traders who are eligible to defer customs declarations will have to estimate their imported VAT from their own records and make any necessary adjustment when they receive the statement confirming actual import VAT due after submitting their deferred declaration.
The timing for declaring import VAT alters for businesses which import goods into special arrangements including customs warehousing and duty suspension. Import VAT is accounted for in the VAT return which covers the date on which the goods are released for use in the UK.
Continuing uncertainties
Businesses are still working towards 2021 without full certainty on how cross border trade will operate. For example, a promised update on the VAT treatment of imported consignments not exceeding £135 in value is awaited. In addition, guidance specific to trade between Northern Ireland will not be finalised until negotiations are concluded with the EU.
Michael Gove’s statement on EU exit preparations
Although the introduction of postponed VAT accounting will contribute to easing the friction for cross border trade from 2021 onwards, Michael Gove’s statement on 13 July 2020 regarding EU exit preparations shows that Customs Duty will require attention. He states that ‘to fulfil the import process’ businesses will need to make customs declarations. Even HMRC’s guidance acknowledges that completing a customs declaration can be complicated and hence they suggest that businesses may want to appoint someone, for instance, an import agent, to deal with it on their behalf.
Perhaps with a consciousness that supply of import agent services may not readily meet demand, HMRC’s guidance also points to customs training providers as a source of assistance. For those businesses which do go through to tackle Customs declarations themselves, they will have to apply for access to Customs Handling of Import and Export Freight (CHIEF) system and have compatible software. The CHIEF system is being replaced by Customs Declaration Service (CDS), but the target date for implementation has moved back and there is to be a period of the systems running in parallel.
The Government has announced that border controls will be introduced in three stages up to 1 July 2021 to smooth the transition. In the first phase-controlled and excise goods will require full customs declarations but people importing standard goods will have up to six months to make their declarations and pay tariffs. In the second phase from April 2021, all products of animal origin and regulated plant products will have to have pre-notification and the relevant health documentation. In the third phase from July 2021, full customs declarations will have to be made at the point of importation and tariffs paid. All animal and plant border checks will take place at Border Control Posts in the UK.