Import VAT – A Brexit Problem – 12/04/21

As the High Street re-opens today we focus on the affects of Brexit on businesses. Businesses have been feeling the effects of Brexit since the end of the transition period, and in particular the payment of VAT and duties when importing goods from the EU. Businesses that have previously imported from outside of Europe will be aware of these problems. With the EU being one of our major trading partners, such issues are arising far more often. The changes created by Brexit were last minute and were badly communicated, despite a huge marketing spend by the Government. However, there is some good news on the VAT issues with importing.

Assuming that you are a VAT registered business, and you are importing goods from outside the UK (post Brexit this includes the EU) then there will be VAT to account for on import. There are 3 options available for dealing with this:

  1. Freight agent pays the VAT to release the goods and then recharges the VAT back to the buyer, plus an admin fee. Sometimes this needs to be paid at the dockside, before the goods are released
  2. Buyer has a VAT deferment account and freight agent uses this account to release the goods without payment to HMRC. HMRC then takes the VAT due via Direct Debit around 45 days later
  3. Buyer uses Postponed Import VAT Accounting (PIVA) and instructs the freight agent that PIVA is to be applied when goods enter the UK. Goods are released without the need for the buyer or the freight agent to pay the VAT over to HMRC. The buyer reflects the VAT on the next VAT return but using a reverse charge, so the VAT is never actually paid over

Option 3 is by far the best option and avoids the cashflow implications of paying import VAT with options 1 & 2. There have been teething problems with the system from HMRC and we recommend that the PIVA reports are checked, which we will come onto

Enrol for PIVA

If you want to use PIVA then the first job is to enrol for the service, which can be done by following the link https://www.gov.uk/guidance/get-your-postponed-import-vat-statement

The link takes you to your Government Gateway login, and once logged in you proceed to answer the questions to get enrolled. Be aware that the application will ask you to subscribe for the Customs Declaration Service) CDS, but there is a link within the above to do this.

You will also need to ensure that you have an EORI number (covered in previous EU blog – easy to apply for), Unique Tax Reference (UTR) Number and the address your VAT number is registered to.

The whole process is a bit of a pain, but once you are into the Gateway ID, it takes a few minutes. HMRC will confirm that it has been processed within an hour or two.

How to use PIVA

Firstly, ensure that your freight agent knows you want to use PIVA, if they do not know they will not necessarily default to using it. Furthermore, if your supplier is arranging freight service make sure that they are aware of your instructions.

Once your imports are being made under PIVA, once a month HMRC will produce your Monthly Postponed Important VAT Statement (MPIVS) which will list all the imports in the previous month. For example, imports in January will appear on the portal from the third week of February. The portal is accessed via your Government Gateway ID and they are not necessarily easy to find!

It is important that you check your statement and make sure that the correct items and amounts are shown. This should then be recorded on your VAT return. This gets a bit technical as the VAT amount on the MPIVS goes into both box 1 (Output VAT) and box 4 (Input VAT). This is effectively a reverse charge arrangement and goes in and out i.e. net result is £nil, you don’t pay that VAT over. The purchases that you made in conjunction with that VAT should be recorded in Box 7 (purchases), which is done by the entry of the purchase invoice.

The above is technical, but if Smarter Accounting do your VAT and if we have the MPIVS statements then we can make the correct adjustments. If you are making the adjustments yourself then each system varies:

  • Xero – When you run the return there is a button on the bottom left to ‘apply PVA adjustments’. Enter the amounts from the MPIVS in there and that will make the correct adjustments
  • Sage / QuickBooks – Do not have a process for such adjustments yet. Therefore, we need to post a journal from sales tax to purchase tax to fool the system into making the adjustment. Speak to your Smarter Accounting contact and they can explain how to complete this

Summary

Although the changes have been brought about by Brexit, the PIVA solution should be a major step forward for any business importing from overseas. If you are importing make sure that you are enrolled for it and your freight agent / supplier knows that you want to use the scheme.

Special thanks to a client (Nikki), who has shared the pain of finding out about the PIVA scheme and contributed to this blog!

The Smarter Accounting Offices will continue to be staffed but will not be open for face to face meetings. We can always make other arrangements for video conferencing or telephone calls if required. If you are dropping off or collecting records via the office, please notify us in advance and wear a facemask.  Please be aware that we are reviewing our policy regards COVID 19 on, at least, a weekly basis.

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Best wishes and stay safe