Accounting For Import VAT on Your VAT Return

If you run a business that regularly imports goods, you will probably already know that you need to account for import VAT on imports into Great Britain. VAT-registered companies don’t require approval to account for import VAT, this can be included as part of your VAT return immediately.

So why are we telling you all this? Well, as a business owner you will know that ‘cash is King’, and maintaining a healthy cash flow helps with this. HMRC have introduced Postponed VAT Accounting for the UK, in order to improve business cash flow for imports. This means that instead of paying VAT upfront at the time of import (and then recovering costs later), the payment can be delayed in order to keep goods moving.

What Is Postponed VAT Accounting?

Businesses never used to factor in paying import VAT when buying goods from outside of the UK, so this postponement reduces the cash flow impact on businesses. UK Postponed VAT Accounting can also be used for international imports, including imports from the EU as well. 

When using Postponed VAT Accounting, import VAT due on goods arriving in the UK can be accounted for on a VAT return. However, VAT doesn’t have to be paid as soon as the goods arrive at the border, as long as the following conditions are met:

1. The goods imported are for use in your business
2. You include your business’ VAT registration number on your customs declaration

It is important to note that if you have applied to HMRC to defer submitting declarations for up to 6 months, you must still account for import VAT on your VAT return.

To help with posting supplier credits and supplier invoices with Postponed VAT, we have included the instructions you will need to carry this out on Sage 50cloud:

1. Posting a supplier invoice with Postponed VAT:

When you use the T18 tax code, or equivalent, for a purchase invoice, it has the following effect:

• The postponed VAT amount adds to the invoice value.
• A VAT-only credit note automatically posts to T18 for the postponed VAT value.  This reduces the outstanding value.
• The credit note allocates to the invoice automatically.
• The VAT due for the purchase adds to boxes 1 and 4 of the VAT Return so its paid and reclaimed on the VAT Return.
• The credit note doesn’t impact the VAT Return. It corrects the supplier balance.
• The net value of the purchase adds to VAT return box 7.
• If the invoice has multiple item lines with VAT values, a credit posts automatically for each line.

2. Posting a supplier credit with Postponed VAT:

When you use the T18 tax code, or equivalent, for a purchase credit, it has the following effect:

• A VAT-only invoice automatically posts to T18 for the postponed VAT value.
• The invoice allocates 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 doesn’t impact the VAT Return. It corrects the supplier balance.
• The net value of the credit reduces the value of VAT Rturn box 7.
• If the credit has multiple item lines with VAT values, an invoice posts automatically for each line.

Changes To Sage 50cloud Accounts

As with all Sage software, we recommend that you install the latest version when prompted, and for this particular update to the configuration table, you will need to have version 27.1.562 of Sage 50cloud Accounts. One thing to bare in mind is that you will need to remove the UK as an EU country by following these steps:

1. Click Settings > Then click Countries
2. For the United Kingdom GB, clear the ‘EU Member’ check-box
3. Click OK

It is also a good idea to remove the previous default EU tax code from both your Customer & Supplier records. The new Postpone Accounting tax code is T18 and will be changed in Sage 50cloud Accounts by default.

We hope this has helped explain how to account for import VAT on your VAT return, but if you have any further questions please get in touch with our Sage experts* on 01428 828000. 

*This article contains general information in order to assist all of our customers and is meant for guidance only – there are no guarantees that the information we provide will be suitable for your particular needs. If you require specific assistance, we recommend that you seek professional guidance on your individual circumstances. Reality Solutions are in no way responsible for any loss or damage arising from any information contained within our articles.