This guide is intended for businesses where all trading locations fall entirely into Northern Ireland or entirely within England, Scotland and Wales. It does not cover scenarios where a business has trading locations in both areas.
To start with, you need to establish which version of VAT rules apply to you:
Do you fall under the Northern Ireland Protocol (NIP)? This is a yes or no answer to the question: “Is the company trading from a location in Northern Ireland?”
If the answer is
- Yes, then you will need to follow the rules for the NIP
- No, then you are following the full Brexit Rules
1. Check when you can account for import VAT on your VAT Return at this HMRC link.
2. The normal due dates, when you have not agreed a special due date for your Returns with HMRC, for the first Returns fully under the new rules will be:
- Monthly Returns – 7 March 2021
- Quarterly Returns – 7 May 2021
Prior to this, the quarterly Return will be a mix of rules between the old and the new rules.
3. Using the Postponed VAT Accounting report (PVA report) for VAT imports
The rules for reclaiming VAT have changed where before a C79 report detailing the VAT paid on entry to the UK was sent out by HMRC and could be reclaimed on your next VAT Return.
Following Brexit, HMRC is introducing a new OPTION (you do not have to use this, but it delays when you normally pay VAT for the time of entry until when you complete a VAT Return for the period containing the PVA report where the import appears).
For England, Scotland and Wales all imports from outside of the UK will appear on the PVA report (this will require postings to Boxes 1, 4 and 7).
Northern Ireland will also receive the PVA report, but in their case this will only contain imports from outside of the EU (imports from the EU under the NIP will continue to be reported using EU Sales and EU Acquisitions with postings to Boxes 2, 4, 7 and 9).
For full details of how this should be reported please check . In particular, it points out that even if you have delayed your customs declaration for the goods imported – “you must account for import VAT on the Return which includes the date you imported the goods“.
At this point it also explains if you do not know the final VAT figure for various reasons you must make an estimate for the VAT due and explains how this should be done.
4. HMRC is committing to making the PVA report available before the middle of the month following the month of import and has specified that the figure on the report must be used as your import VAT. Here is the latest statement from HMRC about the PVA report:
“You need to act now so that you can benefit from postponed VAT accounting (PVA) if you are VAT-registered and import goods into:
- Great Britain (England, Scotland and Wales) from anywhere outside the UK
- Northern Ireland from outside the UK and EU
PVA allows you to declare and recover import VAT on the same VAT Return, rather than having to pay it upfront and recover it later.
There is more guidance on how to:
- Check when you can account for import VAT on your VAT Return
- Complete your VAT Return to account for import VAT
You will not need approval to benefit from PVA, but they will need to access the Customs Declaration Service (CDS) to view and download your monthly statements – in PDF format.
The statements are required to complete your VAT Returns or to send to whoever completes the VAT Return on your behalf. Businesses should subscribe to the new service as soon as possible.
Importers that already have access to CDS will go straight from the start page to their CDS financial dashboard where they can view and download their statements. Businesses without access to CDS will be automatically directed to subscribe to CDS first.
Customs Handling of Import and Export Freight (CHIEF) users who subscribe to CDS to access statements can continue to use CHIEF to make customs declarations.
Signing up for CDS is straightforward and takes only a few minutes. Businesses will need details of their:
- Government Gateway user ID and password
- Economic Operator Registration and Identification (EORI) numberthat starts with GB
- Unique Taxpayer Reference (UTR) – find your UTR if you do not know it
- National Insurance number – if you are an individual or sole trader
- The date they started your business
A common error is inputting the address incorrectly. If the address on the application is not identical to the address that we hold, there will be delays in the processing. To avoid this, businesses should check all the details they plan to input, and make sure the address we hold is correct and up to date.
From 1 January 2021, when an importer completes the customs declaration, on CHIEF or CDS, and indicates that they will be accounting for import VAT on your VAT Return, that import VAT will be shown on their monthly statement.
CHIEF users will need to enter:
- Their EORI number starting with ‘GB’ which includes their VAT registration number into box 8 (Header Consignee), or, if applicable, your VAT registration number in box 44h (Registered Consignee)
- ‘G’ as the method of payment in box 47e
CDS users need to enter their VAT registration number at header level in data element 3/40 – VAT will be recorded against the EORI and will be at declaration level only.
The first monthly PVA statements will be available in early February showing the total import VAT postponed in January. You should sign up to CDS now so that you are ready to complete your first VAT Return under the new rules.
5. In order to assist in the tracking of trade with the rest of the world in your ledgers it may well be useful to create a set of VAT and / or Transaction codes specifically to handle Import and Export
6. If your business is located in Northern Ireland, you will need to continue using the VAT rules that were in place for trading with Europe, including handling VAT in the same way as you did before 1 January 2021.
Making Tax Digital (MTD)
All this is happening on top of HMRC mandating digital linkage, and the soft-landing period is almost over. From April 2021, VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000) are now required to follow the Making Tax Digital rules by keeping digital records and using software to submit their VAT returns.
If you are below the VAT threshold you can voluntarily join the Making Tax Digital service now.
VAT-registered businesses with a taxable turnover below £85,000 will be required to follow Making Tax digital rules for their first return starting on or after April 2022.
HMRC states you must keep digital records in Functional compatible software.
Functional compatible software is a software program, or set of software programs, products or applications, that must be able to:
- Record and preserve digital records
- Provide to HMRC information and returns from data held in those digital records by using the API platform
- Receive information from HMRC via the API platform
Each piece of software must be digitally linked to other pieces of software to create the digital journey.
What constitutes a digital link?
- Linked cells in spreadsheets
- Emailing a spreadsheet containing digital records to a tax agent so that the agent can import the data into their software to carry out a calculation (e.g. a Partial Exemption calculation)
- Transferring a set of digital records onto a portable device (e.g. a pen drive, memory stick, flash drive) and physically giving this to an agent to import that data into their software
- XML, CSV import and export, and download and upload of files
- Automated data transfer
- API transfer
- Find out more
What about adjustments?
Here you are allowed, or required to, adjust the input tax claimed or output tax you owe. According to the VAT rules, you must record this adjustment in functional compatible software. Only the total for each type of adjustment will be required to be kept in functional compatible software, not details of the calculations underlying them.
If the adjustment requires a calculation, this calculation does not have to be made in functional compatible software. If the calculation is completed outside of functional compatible software, then digital links are not required for any information used in the calculation. However, using software for all your calculations will reduce the risk of errors in your returns.
How can Advanced help?
Our MTD solution, the Business Tax Portal, integrates with all of our financial management solutions either by API or CSV export (both being recognised digital links), along with the following features and functionality to aid you in being fully compliant with MTD legislation:
- Submit directly to HMRC via BTP
- Full submission history
- Accepts 9 box data
- Retrieve obligations
- Exception review and correction
- Amendments / adjustments
- Comments and attachments
- Journals for your financial management solution
- Two stage approval
If you’re not already using our Business Tax Portal software solution, please register your interest here.