Post-Brexit: UK Postponed Import Accounting for VAT

Andrew Hocking
October 22, 2020

If you listen carefully, you can hear the tick tock of the Brexit clock growing ever louder. As 31 December looms into view, there’s lots to consider from a VAT point of view. One area business must get up to speed with is the movement of goods between the EU and the UK post-Brexit.

Whether the UK Government agrees a Free Trade Agreement (FTA) with the EU in the coming weeks or not, the UK looks set to become a third country for VAT purposes from 2021. This means that any goods moving between the UK and the EU are imports and exports.

What does this mean for those importing into the UK?

If there is no FTA, businesses will quickly need to get acquainted with customs duty. It will be liable on goods imported into the UK, at rates set out in the UK Global Tariff list (UKGT). Unlike VAT, customs duty is not recoverable, so understanding if any mitigations are possible is essential. As is ensuring that you do not apply the duty multiple times to the same goods, or profit margins will be eroded.

A further point to consider is that import VAT will be due on goods imported into the EU from a country outside the EU (which, after Brexit will include the UK). It will also apply to imports into the UK from any country. The impact of import VAT on cashflow could be significant. However, relief is on hand in the form of postponed VAT import accounting.

Postponed import VAT accounting in the UK post-Brexit

From 1 January 2021, the UK introduces postponed accounting for import VAT. Post-Brexit, postponed accounting for import VAT will apply not only to imports from the EU – but to all goods imported from outside of the UK. This is intended to ease cashflow pressures and will provide important benefits to importers. For UK businesses that purchase goods from suppliers in the EU, this is really significant.

The UK is late to the postponed accounting party compared to its EU neighbours. Many Member States already have postponement mechanisms in place. The option to postpone makes a country attractive to importers, and where it doesn’t exist there may be a deferred payment option in place. UK businesses must get up to speed with these different systems to establish the most effective supply chains.

What’s next?

UK businesses need to prepare for the changes to future transactions with EU Member States. In the coming weeks we’ll provide more information on postponed accounting, including a run-down of applicable options in the UK’s key EU trading partners.

For those importing into the UK there are important steps to take. Businesses must ensure they are able to import goods. This means completing customs declarations and also ensuring an EU EORI number is in place. Postponed import accounting for VAT is a measure which could have positive benefits for UK businesses that import. So understanding the process is essential.  

For more post-Brexit related content:

Goods, Services, and VAT Recovery Post-Brexit – What do Businesses Need to Know?

UK Border Controls Post-Brexit – What you Need to Know About Importing Goods

Take Action

Keen to know how Brexit will impact your VAT compliance obligations? Register for our upcoming webinar Brexit and VAT: Protect your valuable supply chains and minimise costly disruptions to find out more.

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Author

Andrew Hocking

Director of Managed Services. Andrew is the Director of Sovos’ Managed Services group in Europe. Based in London, he leads teams specialising in IPT and VAT compliance and fiscal representation in over 30 countries. Andrew holds qualifications in Finance and Business Law, and is a qualified Chartered Accountant with over 10 years experience in indirect tax and technology.
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