VAT changes: Import duties and VAT after Brexit

By Team Starling

With the UK leaving the EU, there are significant changes to how goods are accounted for at the border in terms of VAT. To help you successfully navigate these changes, we’ve created a useful guide on how to account for imports on your VAT return, post Brexit. Better still, if you have Starling’s Business Toolkit, it will do the heavy lifting for you.

The introduction of a hard border between Great Britain and Northern Ireland, means that VAT on goods brought into Northern Ireland will now be reported differently to the rest of the UK - please refer to the section for Northern Ireland below for more information.

Do I have to pay VAT on imported goods from the EU after Brexit?

For businesses in Great Britain (England, Scotland or Wales)

As a VAT registered business, you should not be charged VAT from your supplier if you’re importing goods into the UK. How you account for these goods on your VAT return, depends on their consignment value.

A consignment is a batch of goods delivered to someone. So if you’re delivering directly to your customers from your supplier overseas, then the consignment value is the total value of the goods being delivered to your individual customer/s. If it’s being sent to your business address/warehouse first, then the consignment value is the total value of the batch of goods.

Import VAT if the consignment value is up to £135

For consignments of up to £135, you’ll report the import VAT to HMRC under the reverse charge mechanism.

This is where you tell HMRC how much VAT you would have paid on this good had you bought it in the UK. On your VAT return, you act as both the seller and buyer of this good, and put the VAT you would have been charged into box 1 (VAT on sales) and then subsequently reclaim it again in box 4 (VAT reclaimed) and record the net sale (Box 7) and the net purchase (Box 8). The net result means there is nothing to pay on your VAT return, but HMRC have full information about the transaction.

If you have Starling’s Business Toolkit, we apply this for you when you toggle ‘Cross Border VAT reporting’ and ‘Goods purchased from outside the UK’ on your transactions.

Import VAT if the consignment value is more than £135

For consignments of more than £135, you will need to pay import VAT. How you do this depends on what you declared on your customs declaration. This is the statement you fill out at the border to get your goods across. If you use a courier, they’ll fill this out on your behalf.

There are two options when it comes to Import VAT accounting. When the goods arrive at the border, you will either be charged import VAT immediately by customs (if you use a courier they will pay this on your behalf and recharge you), or you may use a method called Postponed VAT Accounting. You’ll need to account for these goods differently, depending on which Import VAT accounting method you use.

Option 1: C79 method - if you choose to pay Import VAT at the border, or your courier chooses to do this.

• You’ll pay VAT (as a separate transaction) on the goods, at the border. You will pay this personally, or the courier will pay this on your behalf and recharge you.

• You’re not allowed to reclaim the VAT for those goods on your VAT return until you get a C79 certificate from HMRC. The C79 certificate is issued monthly (usually the 12th of the following month) and you’ll receive it through the post or online. It’s where HMRC take all the information from customs declarations for each calendar month and report for each VAT registered business the amount of import VAT they have paid.

• When you get the certificate, you should check that the imports documented align with what you brought into the country for the month stated on your certificate. You can then adjust your VAT return to claim for the amount documented on your C79.

• You should claim your C79 on the first VAT return after you have received your certificate, so that the period you made the purchase and the period you claim the VAT align. However, if you receive your C79 late you can claim this on a later return. Depending on how often you file your returns (monthly, quarterly, yearly) you may need to claim for several C79 certificates (as they are supplied monthly) on one VAT return, so make sure to keep them stored for when you need them.

If you have Starling’s Business Toolkit, we make everything simple - we ask you to record the purchases as you would normally. Input the figures from your C79 certificate and we’ll calculate the adjustments to your VAT return for you.

Option 2: Postponed VAT Accounting (PVA)

• HMRC have introduced a new method for import VAT called Postponed VAT Accounting. This means that instead of paying VAT at the border and then reclaiming it on your return, all VAT is accounted for on your VAT return, simplifying the procedure.

• To use this method you (or your courier) will need to quote your EORI number on your customs declaration. This will then feed into your PVA statement. According to the guidance, you will be able to access your monthly PVA statement in the first half of the month following your imports, from your government gateway. This statement will have the figure for the total purchases you have imported, which is required to make the adjustment on your VAT Return.

• To ease the transition into the post-Brexit world, HMRC allows you to defer your import declarations for imports between 1st January 2021 - 30th June 2021. However, you will still need to report an estimate on your VAT return whilst you wait for access to your PVA monthly statement.

• On your VAT return as outlined by HMRC, as you act as both the seller and buyer of this good, you put the VAT you would have been charged into box 1 (VAT on sales) and then subsequently reclaim it again in box 4 (VAT reclaimed) and report the sales figure in Box 7 (net purchases). The net result means there is nothing to pay on your VAT return unless you’re on the flat rate VAT scheme, as you cannot reclaim the VAT for most expenses.

If you have Starling’s Business Toolkit, you just need to apply the following VAT treatments in Bookkeeping against the purchase transaction: ‘Goods from outside the UK’ with a consignment value greater than £135. Then on your VAT return you can add an adjustment, by inputting the amount on your PVA statement (or estimate if you have deferred your declaration), and the Toolkit will calculate the adjustments for you.

For businesses in Northern Ireland

If you’re from Northern Ireland then you will account for imports differently. This is because even though Northern Ireland is part of the UK VAT system, it will still also be part of the EU customs union.

Therefore if you import goods from the EU (this now excludes Great Britain) you will still need to report the goods as an Acquisition on your VAT return. You put the VAT on your purchase in Box 2 and Box 4, which means you don’t have anything to pay or reclaim, and the net amount in Box 7 and 9. You will also need to complete an EC Sales list.

Goods sold between Northern Ireland and Great Britain are treated as a UK domestic sale so VAT is charged at the normal UK VAT rate. As a result of Brexit, if you move goods (not sell) from Great Britain to Northern Ireland, you need to declare Import VAT on your next return - you need to put VAT in Boxes 1 and 4 (if recoverable) and net values in boxes 6 and 7.

For goods imported from outside of the EU into Northern Ireland, you will apply the same consignment value check outlined in the section above for Great Britain. Then depending on the consignment value you will either report immediately if less than £135 or through postponed VAT accounting if over £135 (see above section).

If you have Starling’s Business Toolkit, you can easily account for importing goods from the EU by toggling ‘Goods to the EU’ against the transaction in Bookkeeping.

If you move goods from Great Britain to Northern Ireland, whether you’re a Northern Ireland Business or from mainland UK, you can make an adjustment on your VAT return by inputting the relevant figures, and then the Toolkit will calculate the adjustments for you.

This article is intended as general information only and does not constitute advice in any way. For any specific questions, you may want to consult your legal advisor or accountant.