In this blog, Amy Daniels, Accounts Manager at LWA, explains what businesses should be doing to stay compliant.
What is postponed VAT accounting?
Postponed VAT accounting allows VAT-registered businesses to account for import VAT on their VAT Return rather than paying it immediately when goods enter the UK.
The system was introduced following Brexit and is available for imports from both EU and non-EU countries.
For many importers, the main advantage is improved cash flow. Instead of paying VAT upfront and waiting to recover it later, the VAT is declared and reclaimed on the same VAT Return, subject to the normal input tax recovery rules.
How postponed VAT accounting works on your VAT Return
When using postponed VAT accounting, the import VAT must be included on the VAT Return covering the accounting period in which the goods were imported. Usually as follows:
- import VAT due is included in Box 1
- reclaimable input VAT is included in Box 4
- the value of imports is included in Box 7.
Businesses should use their monthly postponed import VAT statement as evidence for the figures being included on the return.
Why HMRC is paying closer attention to postponed VAT accounting
VAT compliance activity has increased significantly in recent years, with HMRC carrying out more VAT investigations and making greater use of data matching and digital reporting systems.
Postponed VAT accounting creates a digital trail between customs declarations, import VAT statements and VAT Returns. This means discrepancies are easier for HMRC to identify.
In many cases, the issues are not deliberate errors. Businesses may simply be:
- posting figures into the wrong VAT period
- relying on incorrect import documentation
- missing postponed import VAT statements
- duplicating import VAT claims
- using incorrect VAT codes within accounting software
- failing to reconcile customs entries to VAT Returns.
Even where the net VAT position is nil, HMRC can still challenge inaccurate returns and request supporting evidence.
Common postponed VAT accounting mistakes businesses should avoid
1. Using estimated figures instead of HMRC statements
One of the most common issues is businesses estimating import VAT figures before receiving their postponed import VAT statement.
HMRC expects businesses to use the official monthly statement when completing their VAT Return. Using estimates can create mismatches between customs data and VAT filings, particularly where shipments are delayed or customs values are amended.
2. Posting import VAT in the wrong period
The VAT must be accounted for in the VAT period covering the import date, not when the goods are paid for or when the invoice is received. This can become an issue where businesses receive statements late or where bookkeeping records are not updated promptly.
3. Missing postponed VAT statements altogether
Unlike the old C79 certificates, postponed VAT statements are accessed digitally through HMRC’s Customs Declaration Service. HMRC does not automatically send paper copies. Businesses should ensure someone within the finance team is regularly downloading and reviewing the monthly statements.
4. Incorrect software coding
Accounting software can automate much of the VAT process, but only if the VAT codes are configured correctly. Incorrect settings may mean:
- identify missing entries
- spot duplicated imports
- correct customs valuation errors
- ensure VAT Returns agree with HMRC records
- provide evidence during a VAT inspection.
This is particularly important for partially exempt businesses, where not all import VAT may be recoverable.
Why reconciliation is so important for postponed VAT accounting
Reconciling postponed VAT statements to import records and VAT Returns is becoming increasingly important as it helps businesses to:
- identify missing entries
- spot duplicated imports
- correct customs valuation errors
- ensure VAT Returns agree with HMRC records
- provide evidence during a VAT inspection.
HMRC’s systems are increasingly able to compare customs and VAT data automatically, so inconsistencies are more likely to trigger queries than in previous years.
What records should import businesses keep?
Businesses using postponed VAT accounting should retain:
- postponed import VAT statements
- import documentation and customs entries
- freight agent paperwork
- purchase invoices
- VAT Return workings and reconciliations.
Good record keeping is essential not only for VAT compliance, but also for Making Tax Digital requirement.
LWA can help review your postponed VAT accounting process
If your business imports goods regularly, it may be worth reviewing how postponed VAT accounting is currently being handled.
Many businesses introduced processes quickly following the post-Brexit changes and may not have revisited them since. As HMRC increases compliance activity, now is a good time to check that your VAT codes are working correctly, statements are being downloaded and reviewed each month, and that your VAT Returns are properly reconciled to your import records.
At LWA, we support businesses with VAT compliance, import VAT processes and Making Tax Digital reporting. We can help review your current approach, identify any gaps or errors, and ensure your processes are accurate, consistent and aligned with HMRC expectations.
If you would like support reviewing your postponed VAT process, please get in touch with Amy Daniels on 0161 905 1801 in our South Manchester office, or you can email your query to mail@lwaltd.com with ‘Postponed VAT accounting advice needed’ in the subject header.