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A faster way to recover VAT on goods imported to the UK

Posted 6 months ago in Advisors by Tim Wright
Posted by Tim Wright

The end of the Brexit transition period is almost here. From 1 January 2021, controls will be placed on the movement of goods between the UK and the EU. This means there won’t be any difference in the VAT treatment of imported goods from European countries and the rest of the world.

To manage this change, HMRC has established a new process called Postponed VAT Accounting (PVA). We’re updating Xero with the necessary changes, to help your business or practice adapt.

What is Postponed VAT Accounting?

PVA gives you the option to account for and recover VAT on your imported goods using the same VAT Return form. It’s a faster and more efficient way to complete your VAT Returns, and means you won’t have to pay your VAT upfront and recover it at a later date, which will help you manage your cash flow. 

You can choose to use PVA if you:

  • have a UK business that is registered for VAT
  • import business goods to the UK valued at more than £135 (exclusive of VAT)
  • elect to use PVA on the customs declaration
  • use your own VAT registration and EORI numbers on the customs declaration

Using PVA in Xero will be simple

We have developed a PVA update in Xero. It will be released well before you need to deal with your first VAT Return in the new year. The new functionality will be automatically available at no extra cost to Xero customers who use Making Tax Digital (MTD) or the new non-MTD VAT. Flat rate and old non-MTD VAT Returns will not have PVA functionality.

The first VAT Return that will offer PVA will be due around 7 March 2021, for any period ending 31 January 2021. You’ll need to make sure you include your EORI and VAT registration number on your customs declaration. This will help HMRC calculate your Monthly Postponed Import VAT Statement (MPIVS), which will be available in your HMRC portal. 

When creating a VAT Return in Xero next year, you’ll just need to select the ‘PVA option’ button and add the amount from your MPIVS. Xero will then populate your VAT Return automatically. No accounting transactions required. If you can’t or don’t want to use PVA, there’ll be no change to the way you deal with VAT on imports for your business.

Keep up to date with future changes

The changes associated with Brexit can be overwhelming, but we’re here to make them as easy as possible for you. If you have any questions or need support, don’t hesitate to reach out to our support team who are available 24/7. We’ll continue to keep you updated on the latest changes to Xero, so you can focus on your business. You can also find out more on our Brexit Hub.

10 comments

Teresa Grieve
December 23, 2020 at 6.39 am

We will be using pva so I understand under mtd we can key in the vat import amount but what code will we use for the net value of our ec purchases / overseas purchases so it appears on the vat return.

Beeny Atherton in reply to Teresa Grieve Xero
December 24, 2020 at 10.42 am

Hi Teresa, thank you so much for getting in touch. Posting the PVA amounts to the VAT return using our new feature will update Box 1 and Box 4 on the VAT return. This ensures the postponed VAT amounts required by HMRC are handled correctly.

To enter the original bill or expense for the goods from the overseas supplier to be imported, so that it updates Box 7 on the VAT return with no vat calculated, you could use the zero rated tax rate. Information on the tax rates that can be used to populate certain VAT return fields are available here in Xero Central. I hope that helps.

Roxanne Sedgbeer in reply to Beeny Atherton
January 20, 2021 at 1.45 am

Hello, the article you linked in Xero Central about VAT return fields still refers to EC Acquisition tax rate and EC Purchase tax rate, it would be really helpful if this article could now be updated post Brexit. Thank you!

Joanne Tait in reply to Roxanne Sedgbeer Xero
January 29, 2021 at 4.11 pm

Hi Roxanne, thank you very much for bringing this to our attention. I’ve sent a request through to the team that looks after Xero Central and asked them to update it. Thanks, Joanne

Alan P
December 30, 2020 at 1.07 am

Im still confused.have all my products from europe set up as 20%vat from eu….do i change them all to no vat as my chinese imported goods?

Beeny Atherton in reply to Alan P Xero
January 19, 2021 at 3.15 pm

Hi Alan, thanks for your comment. As we are not across any specifics about your business or how you normally do things we must be mindful not to provide accounting advise – we recommend that you speak with your Xero Certified Adviser for specific advise regarding your situation. If you don’t have a Xero Certified Adviser, you can find one here.

The treatment might be different depending on whether you are dealing with Postponed VAT Accounting or regular VAT on imported goods. With Postponed VAT Accounting we’d generally think the initial overseas purchases be treated as zero rated because VAT is not assessed on the initial purchase, it’s assessed when it comes through HMRC/Customs agent in UK. You can find some information about adjusting the amounts on a VAT return here.

Jo Summers
January 21, 2021 at 2.50 am

So I should post invoices received from EC Suppliers with VAT Code Zero Rated Expenses as I would for invoices from non-EC Suppliers?
Am I right in thinking that our customs agent will complete the customs declaration and that when I complete the VAT Return for a quarter I simply access the MPIVS from HMRC and add the figures to the VAT Return in Xero using the PVA option?
How should invoices for less than £135 be treated? Will the VAT due on these be invoiced by freight company as currently for ROW suppliers and reclaimed via the VAT Return when backed up by a C79?

Thanks in anticipation of a clear answer!

Beeny Atherton in reply to Jo Summers Xero
January 21, 2021 at 2.57 pm

Hi Jo – thank you so much for getting in touch. It might be best for you to speak with someone in our support team directly so they can give you a hand. If you can please raise a case here someone will get in touch with you to help answer your questions as clearly as possible. Thanks!

Astra
April 8, 2021 at 4.08 am

I am on a flat rate scheme. Will I still be able to use Xero for MTD when I buy from EU? I have never bought goods from outside the EU so have no experience of this.

Beeny Atherton in reply to Astra Xero
April 12, 2021 at 2.21 pm

Hi Astra, thanks so much for getting in touch. Yes, there’s a slightly different way to handle PVA amounts on VAT returns in Xero if you’re on a flat rate scheme – please contact our friendly support team who will be able to give you a hand by providing you with specific details. To contact us, simply click the Help icon at the upper right hand corner of the screen while you’re logged into Xero. Thanks!

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