Common Mistakes to Avoid When Dealing with Deferred VAT & Duty on Imports

If you're a business involved in importing goods into the UK, managing import Value Added Tax (VAT) is a critical part of the process. One option to ease cash flow is to defer your VAT payments on imports via Postponed VAT Accounting. However, getting it wrong can result in penalties. Here, The VAT People guides you through the common pitfalls and best practices.

Eligibility and limitations

VAT 

Postponed VAT accounting (PVA) can be used by any UK VAT registered trader to defer paying VAT on imports to accounting for it on your return as output VAT, recovering the same amount as input tax therefore assisting with cashflow.

With PVA import VAT is never physically paid to HMRC (being 'paid' and 'recovered' at the same time on your UK VAT return) whereas if the business decides to pay import VAT on the goods entering the UK, this can still be recovered on the VAT return covering the period of import. As such, the amount due or recoverable does not change. 

Businesses do not net need to register to used postponed VAT accounting, however your logistics provider must indicate on the import declaration that this is to be utilised.

Postponed import VAT statements, which detail the amount of import VAT postponed per month, are obtained using your government gateway account – these should be downloaded and kept as evidence for input VAT recovery.

If the business does not utilise PVA as above, import VAT becomes due on the goods entering the UK. The businesses UK VAT registration number and UK EORI should be included on the import documentation to enable this import VAT to be included on the business import VAT certificate (C79) which is the only acceptable evidence for recovering import VAT when paid at import.

Duty

To defer the payment of customs duties, you must set up a duty deferment account, which allows importers to make a single monthly payment of duty incurred as opposed to paying for individual consignments. Once this is in place, you can defer payments when completing your customs declaration. But be cautious; you can't defer if you've exceeded your guarantee or account limit for the month. If you do, your goods will be delayed at customs. Also, your account could be suspended if there are payment or compliance issues. Therefore, it's crucial to ensure your guarantee or account level is adequate, especially during peak import periods.

There is little benefit to a UK VAT registered business accounting for recoverable import VAT through a duty deferment account, as this would involve the physical payment of these monies, which is not required under Postponed VAT Accounting.

Payment timelines

Timing is everything. Once you've deferred duties for a calendar month via a duty deferment account, you're required to pay the total sum either on the 15th of the next month or the next working day if the 15th is not a working day. This gives you an average of 30 days of credit, which can be a significant advantage for your cash flow. Make sure to mark these dates in your calendar to avoid late payments.

Import VAT, when accounted for through postponed VAT accounting, is included on the relevant UK VAT return, accounted for as an output and an input, ensuring a nil net effect.

Payment methods

When it comes to settling your deferred customs payments, the approved method is the BACS system of Direct Debit in pounds sterling. The total amount you've deferred will be automatically debited from your bank account on the payment day and transferred to the government's account. If your deferred amount exceeds £20 million, you'll need to contact the Duty Deferment Office for alternative payment options. Make sure your bank account has sufficient funds to avoid any hiccups.

Consequences of non-compliance

Non-compliance comes with its own set of headaches. If your Direct Debit fails, your account will be suspended until payment is received. You may also incur interest charges on late payments and even have your duty deferment facility revoked if payments are consistently outstanding. If you're an agent acting on behalf of an importer, you're jointly liable for any customs debt that may arise. So, it's in your best interest to ensure all payments are made on time.

Making corrections and adjustments

Mistakes happen, but it's how you correct them that counts. Errors in accounting for postponed import VAT (for example, if this is recovered as input tax but not declared as an output) will need to be corrected either by adjusting your VAT return, or submitting a written disclosure, depending on the value of the error. If you find an error in your deferred duties, adjustments can usually be made in your deferment account before payment is taken - if this isn't possible, you may need to pay any additional duties. Always double-check your declarations to minimise the need for corrections.

Keeping your account updated

Your duty deferment account isn't a 'set it and forget it' affair. You must inform the authorities immediately if there are changes in your company name, address, or VAT registration number. Failing to do so can result in the suspension of your duty deferment facilities. If you're planning to close your account, ensure all outstanding payments are made before cancelling your Direct Debit instruction.

Conclusion and consultancy services

Managing deferred VAT and duty on imports is a complex task that requires meticulous attention to detail. From understanding what can be deferred to ensuring timely payments, the process is fraught with potential pitfalls. This is where expert VAT consultancy services come into play. A seasoned VAT consultant can guide you through the intricacies of deferred VAT, helping you avoid common mistakes and optimise your cash flow.

Consult us for expert guidance on deferring VAT on imports 

Navigating the complexities of deferred VAT and duty on imports can be challenging. Why risk costly mistakes - consult a VAT specialist today to ensure you're fully compliant, optimising your cash flow, and making the most of your deferment options.

Contact the experts at The VAT People today by calling on 0330 8284 289 or filling out our contact form here.