Post Brexit VAT – common mistakes

Since the end of the transitional period on 1 January 2021 some businesses have not been dealing with VAT on the import and export of goods correctly. We have summarised some of the more common issues below.

1. Movement of goods to the EU and VAT registration

Often businesses are unaware that a single shipment of goods into an EU Member State can trigger an EU VAT registration obligation. This will not usually be the case if the customer acts as importer.

Registering for VAT overseas, particularly belatedly, can be costly. If the customer is responsible for the import and associated cost, this should be clear on contracts and customs declarations, with the correct Incoterms being used. Instructions to freight forwarders and shipping agents should also be clear.  If the goods have already been moved and customs paperwork complete, the requirement to VAT register may have been triggered and advice is required.

2. Accounting for import VAT in the UK on goods purchased overseas

If a business imports goods into the UK from overseas, it is likely it will be required to account for import VAT. VAT registered businesses can account for import VAT on importation or they may be able to account for import VAT on their VAT return using Postponed VAT Accounting (PVA). PVA allows the business to declare import VAT and reclaim it as input tax on the same VAT return (subject to the usual VAT recovery rules). This can provide a cash-flow benefit.

Businesses using PVA must ensure they account for import VAT correctly and will have to register online to download the relevant PVA statements.

3. Import documentation – evidence of import VAT paid

To support the reclaim of import VAT on a VAT return, the owner of the goods must hold a C79 certificate or PVA statement in its name. If the correct details have not been used at import (for example the agent’s details have been provided instead of details of the business buying the goods) this evidence will not be available. As a result the owner of the goods will not have acceptable evidence to support their import VAT claim.

This again highlights the importance of providing clear instructions to freight forwarders and shipping agents and ensuring that import and export declarations are properly completed.