What is postponed VAT accounting?

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.

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.

Alternatives to PVA

Businesses unable to use PVA legitimately should consider other ways to manage import VAT costs, such as:

• Inward processing: allows suspension of import VAT and duties on goods imported for processing or repair.
• Temporary admission: permits temporary importation of goods without payment of VAT or duty, where the goods will be re-exported.
• Duty deferment or CDS cash accounts: enable importers to pay import VAT and duties periodically rather than at the point of import.