As part of the Brexit cutover, there is a change to the way that import VAT is handled within the UK from 1 January 2021. This is the Import VAT paid on goods imported into the UK. Effectively the timing of that payment is changing and this blog aims to explain the change, as well as identify the configuration adjustments required. In a nutshell, it is the creation of a new VAT code as well as changes to the HMRC’s Making Tax Digital (MTD) configuration to account for the changes.
HMRC has introduced a policy where from 1 January 2021, businesses will be allowed to account for VAT on imports through their periodic VAT return as opposed to having to pay that VAT at (or soon after crossing) the UK border. This is from anywhere in the world. This means that the current European Union (EU) reverse charging process will cease, and effectively the Import VAT payment to HMRC for all imports will be delayed to the next VAT return, rather than at the time of importation.
Postponed VAT Accounting is when the VAT is paid on all import sales and is also claimed back as part of the VAT Return process. This is done by the use of a distinct VAT code on the Invoice to identify the scenario. The associated configuration then generates the appropriate postings, which in turn is reflected in the report entries.
When importing a consignment of goods less than £135, a distinction can be made if the sale is B2C (Business to end Customer) or B2B (Business to Business). This distinction is made by whether the customer has a VAT registration number (B2B) or not (B2C). This means that B2B customers that do not provide a VAT number will be handled in the same way as B2C customers. The new arrangements will replace the abolition of Low-Value Consignment Relief, which currently relieves import VAT on consignments of goods valued at £15 or less.
Business to Business – VAT is accounted for by the customer by means of a reverse charge. A reverse charge is reflected by the VAT value being charged as well as the refund claimed at the same time. This is where the new Postponed VAT Accounting code is used.
Business to Customer – No Import VAT is paid. Onward sales of these goods will be subject to normal Sales VAT. This means that VAT is only charged when the company sells the goods to an end customer and not on the import. No specific action is required here.
Keep in mind that very fast reactions may be necessary. Based on the latest developments and together with your functional and IT teams, our G3G experts can analyse your systems, help develop an action plan, and implement all necessary solutions in time.
Contact us now to discuss our MTD solution or to arrange a bespoke workshop to deliver your Brexit-ready roadmap.