Postponed VAT accounting is a mechanism that allows import VAT to be declared and recovered through a business’s VAT return, rather than being paid at the time goods are imported into the UK. This means that instead of paying import VAT upfront and later reclaiming it, the VAT is both declared as output tax and, subject to the usual rules, recovered as input tax on the same return.

This process provides a cash flow benefit for many businesses. However, PVA is purely a payment mechanism and does not in itself confer any entitlement to recover VAT. Misunderstanding this distinction has led to common errors among importers and agents.

When can PVA be used?

PVA is only available when the goods are owned by the importer of record - the entity legally responsible for import duties - and the goods are imported for business purposes.This is a critical area, and we are seeing HMRC assessing for misuse of PVA where an importer brings goods into the UK under, for example, a processing or manufacturing contract, and then seeks to recover import VAT. 

In these cases, PVA cannot be used to defer VAT because the importer does not own the goods. There are alternative procedures, such as inward processing, that can help avoid these costs, but HMRC is increasingly aggressive in its approach, and assessments are being raised where PVA has been applied incorrectly.

The scheme is not restricted by industry type or business size, and it is open to all VAT-registered businesses that import goods into the UK. To ensure PVA is applied, its use should be reflected on the import declaration – in reality, this is lodged by a freight forwarder so businesses should inform them of its intention to use PVA in writing.

PVA allows import VAT to be accounted for on the VAT Return, instead of being paid upfront at the point of import. This can help improve cash flow, particularly when importing high-value goods or large quantities.

It is an optional scheme. Businesses using simplified VAT schemes, such as the Flat Rate Scheme, may be subject to certain restrictions. Non-VAT-registered businesses and private individuals importing goods for personal use are not eligible.

How PVA operates in practice

When operating PVA, import VAT is declared as output tax on the VAT return and, subject to the normal rules, recovered as input tax on the same return. This creates a nil net VAT effect but improves cash flow by removing the need for upfront payment at the point of import.

However, recovery of input tax remains subject to the usual VAT rules. For example, a partly exempt business cannot use PVA to recover VAT that would otherwise be disallowed under its partial exemption method. PVA changes the timing of payment, not the entitlement to recovery.

HMRC scrutiny of PVA use

HMRC is currently focusing on the misuse of PVA, particularly in situations involving charities, universities and processing contractors who import goods that they do not own. Assessments have been raised even where import VAT has been declared via PVA but was not recoverable under the rules.

Before goods are imported, businesses should confirm that PVA is an appropriate method for accounting for import VAT. Incorrect use may lead to HMRC raising assessments for underpaid import VAT and interest charges.

How can I use postponed VAT accounting?

Using postponed VAT accounting is straightforward once your business is set up for VAT. Here are the steps:

• Register for VAT: while a business is not required to apply for authorisation to utilise postponed VAT accounting, your business must be VAT-registered with HMRC. If you’re not registered, you'll need to complete this process before utilising postponed VAT accounting.
• Import goods: when your goods arrive in the UK, a customs declaration will need to be lodged – in most instances, this is completed by a freight forwarder. This is where postponed VAT accounting comes in.
• Select postponed VAT accounting on your declaration: when lodging the customs declaration notification of the intention to use PVA will need to be included – where someone else is lodging the declaration on your behalf, they should be notified of this in advance.
• Review your monthly postponed import VAT statement: each month, HMRC provides a Postponed Import VAT Statement (PVA Statement), which lists all imports that used postponed VAT accounting. This document is essential for completing your VAT Return as it contains the VAT amounts you must report.
• Account for VAT on your VAT return: instead of having to pay VAT upfront at the point of entry, you report it on your VAT Return. You will need to include the import VAT on your VAT Return as if you had already paid it and then reclaim the same amount as input tax (if you're eligible to do so). This involves including the postponed VAT figure, detailed on a business’s monthly PVA statement in Box 1 of the VAT return (this is where it is paid), and Box 4 of the VAT return (this is where it is recovered), ensuring a nil net effect. Should businesses be restricted from recovering input VAT, such as where partially exempt, this will need to be taken into consideration.

What are the benefits of using postponed VAT accounting?

Postponed VAT accounting offers several benefits, particularly for businesses that rely on regular imports or high-value shipments.

• Improved cash flow: one of the main advantages is that businesses no longer need to pay import VAT upfront. Instead, the VAT is deferred until it is reported on the next VAT Return, allowing companies to keep funds within the business for longer. This can make a big difference for smaller firms or businesses providing taxable supplies with consumption tax included in the cost to the customer but a tight cash flow.
• Simplified VAT management: incorporating postponed VAT accounting into your VAT Returns consolidates your VAT processes. This eliminates the need for separate payments at the time of each import, reducing administrative effort and allowing for a smoother workflow.
• Immediate reclaim of VAT: postponed VAT accounting allows businesses to recover import VAT immediately on the same VAT Return. For companies that are fully VAT-recoverable, this means there’s no gap between paying VAT at the border and recovering it later, improving financial flexibility.
• Avoiding border delays: without the need to pay VAT immediately upon import, businesses can avoid delays at customs caused by waiting for VAT payments to clear. This reduces the risk of goods being held at the border and speeds up the overall import process.
• Alignment with other VAT processes: postponed VAT accounting aligns with the UK's Making Tax Digital (MTD) initiative. It integrates smoothly into electronic VAT reporting, reducing the need for manual calculations and enhancing overall compliance.

What are the challenges of postponed VAT accounting?

While postponed VAT accounting simplifies some processes, it also comes with its own set of challenges that businesses need to manage.

• Accurate record-keeping: businesses must keep accurate, detailed records of all import and output VAT. Failing to correctly report postponed VAT on your VAT Return could lead to penalties or complications with HMRC. Businesses must reconcile the monthly postponed import VAT statements from HMRC against their import activities.
• Administrative overheads: for businesses managing numerous imports or complex supply chains, postponed import VAT accounting can become time-consuming. Although the system removes the need for upfront VAT payments, it requires careful tracking and precise reporting within your VAT returns, increasing the overall workload.
• Eligibility for VAT recovery: not all businesses can reclaim the VAT they account for under postponed VAT accounting. For example, companies that are partially exempt or those that use the Flat Rate Scheme may not benefit fully from postponed VAT accounting, which will need to be factored into how these are calculated on a business' VAT return.
• Integration with accounting systems: businesses need to ensure that their accounting systems are capable of handling postponed VAT accounting. Not all systems are configured to manage postponed import VAT accounting, so additional setup may be necessary to track and report import VAT accurately.

Get in touch with The VAT People’s team of VAT specialists today and find out how we could help your business take advantage of postponed VAT accounting.