VAT-registered companies that import into the UK can gain cash flow relief by using postponed VAT accounting. Postponed Import VAT Accounting (PIVA) is a mechanism, recently introduced by UK authorities, that enables you to account for import VAT on your VAT return rather than paying it at the border.
What are the cash flow benefits?
At first glance, the cash flow benefit seems simple enough: you pay the applicable import VAT at a later stage, rather than upfront.
However, from an accounting perspective, there’s more going on. Technically, when you account for the VAT on your return, your input and output VAT will effectively balance out.
If that sounds complicated, here’s the important bit. Rather than paying import VAT at the border and then later reclaiming that VAT, you can ‘pay’ the VAT by accounting for it on your return, without actually making a physical cash payment.
When is postponed import VAT accounting required?
PIVA is optional, though you can see why businesses prefer to use it in many cases.
However, there are circumstances in which you must use the mechanism. For example, some importers take advantage of the option to defer customs declarations. In such cases, you must account for import VAT on your VAT return.
Following Brexit, goods imported into the UK from the EU are subject to import VAT. Businesses that import from the EU, who may never previously have concerned themselves with import BVAT procedures, thus stand to benefit from postponed VAT accounting.
In terms of the UK-EU trade deal, importers can also avoid customs duties, under certain conditions. (Specifically, Rules of Origin criteria must be met.)
Brexit also has implications for postponed VAT accounting in Northern Ireland. In terms of the Northern Ireland Protocol, goods imported from the EU into NI are not subject to import VAT. Postponed VAT accounting is therefore not applicable. In the case of imports to NI from the rest of the world, postponed VAT accounting applies normally.
Optimise your VAT compliance
Businesses that engage in international trade face a blizzard of complex decisions. In order to optimise cash flow and improve efficiency, you want to go beyond merely complying with VAT regulations. Rather, businesses should seek to take advantage of VAT regulations that confer the most strategic benefit and prevent disruption or delays. Get in touch with Vatglobal’s expert VAT team for professional VAT assistance and world class strategic VAT advice.