From 1 January 2021, businesses will need to account for import VAT on imports into Great Britain (England, Scotland and Wales) from EU and non-EU countries.
VAT registered businesses do not need approval to account for import VAT on their VAT Return and can start doing so from 1 January 2021.
The normal rules setting out what VAT can be reclaimed as input tax will still apply.
Postponed VAT Accounting has been introduced in both the UK and Republic of Ireland to improve business cash flow for imports.
This system will save businesses from having to pay VAT upfront at the time of import and having to recover it at a later date to help cashflow and hopefully keep goods moving.
HMRC guidance now includes additional information on how to complete your declaration if you are accounting for import VAT on your VAT return.
Even though the UK is no longer part of the EU, for the rest of 2021, as a temporary measure, companies are still required to submit Intrastat reports for goods being transported from EU to the UK.
After 1 January 2021, as you no longer need to submit an EC Sales List but you must calculate and submit your last EC Sales list up to 31 December 2020.
What is Postponed VAT Accounting?
Postponed VAT Accounting will mitigate the cashflow impact on businesses that previously did not have to factor in paying Import VAT when buying goods from outside of the UK.
UK Postponed VAT Accounting can also be used for all Rest of the World (ROW) imports. For Great Britain this will now include imports from the EU but cannot be used for Northern Ireland. While Postponed VAT Accounting can be used in NI, it will only be relevant for Non EU imports.
Postponed VAT Accounting in the Republic of Ireland will also be available for all ROW imports which will now include imports from Great Britain but not from Northern Ireland.
When using Postponed VAT Accounting, import VAT due on goods arriving in the UK or Ireland can be accounted for on a VAT Return rather than having to pay the VAT as soon as the goods arrive at the border and can be used if:
- the goods are imported for use in your business
- you include your business’ VAT registration number on your customs declaration.
Businesses who have applied to HMRC to defer submitting supplementary declarations for up to 6 months, must however, still account for import VAT on their VAT Return.
What has changed?
- Great Britain (England, Scotland and Wales) will now treat EU sales and purchases as rest of the world (ROW) imports and exports
- EU countries (including Ireland) will treat sales and purchases from Great Britain as imports and exports
- To avoid a physical border between Northern Ireland and Ireland, businesses in Northern Ireland will continue to trade goods with the EU as they did before Brexit
- Sales of goods and services between Great Britain and Northern Ireland, from a VAT perspective, have not changed and are expected to be treated as they are today i.e. like domestic sales and purchases
- Businesses from both the UK and Northern Ireland will be able to account for import VAT by using postponed accounting
What has changed in Sage 50cloud Accounts?
- You will need to upgrade Sage 50 Cloud Accounts version 27.1.562 for the VAT configuration table to be changed for you and will look like this:
T1 – Standard rated transactions – Currently 20%
T4 – Sale of goods to VAT registered customers in EC
T5 – Lower Rate – Currently 5%
T7 – Zero rated purchases of goods from suppliers in EC
T8 – Standard rated purchases of goods from suppliers in EC
T9 – Transactions not including VAT
T10 – T14 No change
T15 – Purchase of services from ROW – Reverse charge
T16 – Purchase of services from ROW – No VAT
T17 – Import of goods – Under import reverse charge threshold
T18 – Import of goods – Postponed VAT
T19 – Import of goods – VAT not postponed
T21 – CIS reverse charge – Standard rate
T22 – Sales of services to VAT registered customers in EC
T23 – Zero rated or exempt purchases of services from suppliers in EC
T24 – Standard rated purchases of services from suppliers in EC.
T26 – CIS reverse charge – Reduced rate
- In Sage 50cloud Accounts the new postponed accounting tax code is T18 by default
- You must remove the UK as an EU Country from settings:
Click Settings then click Countries
For United Kingdom GB clear the EU Member check-box
Click OK
- It is advisable to remove the previous default EU tax code from both your Customer and Supplier records and replace with the new one
Are there any new or changed processes?
Yes. For example, posting a supplier invoice with postponed VAT:
When the T18 tax code, or equivalent, is used for a purchase invoice, it will have the following effect:
- A VAT only credit note is automatically posted to T18 for the VAT value reducing the outstanding value of the invoice.
- The credit note is allocated to the invoice automatically.
- The VAT due for the purchase is added to boxes 1 and 4 of the VAT Return so it is paid and reclaimed on the VAT Return.
- The credit note does not impact the VAT Return it is only there to correct the supplier balance.
- The net value of the purchase is added to boxes 7 of the VAT return.
- If the invoice has multiple item lines with VAT values, a credit is automatically posted individually for each line.
And posting a supplier credit with postponed VAT:
When the T18 tax code, or equivalent, is used for a purchase credit, it has the following effect:
- A VAT only invoice is automatically posted to T18 for the postponed VAT value.
- The invoice is allocated to the credit automatically.
- The VAT value for the credit reduces the value of boxes 1 and 4 of the VAT Return.
- The VAT on the VAT only invoice will not impact the VAT Return, it’s purpose is to keep the supplier balance correct.
- The net value of the credit reduces the value of boxes 7 of the VAT Return.
- If the credit has multiple item lines with VAT values, an invoice is automatically posted individually for each line.
This article provides general rather than specific guidance only, no guarantees can be made concerning its suitability for everyone.
The information is valid at the time of publishing and is provided without any warranty of any kind, express or implied. For more specific guidance on your individual circumstances, please take professional advice. No liability will be accepted for any direct, indirect, consequential or incidental loss or damage arising out of or in connection with your use of the information provided.