28th July 2020

On 27 July HMRC confirmed its intention to change the way import VAT is accounted for when goods are imported into the UK.

At present, where goods are imported into the UK from a non-EU country, a business has to pay VAT upfront (or defer payment by a short period) only then to reclaim the VAT on a subsequent VAT return.  This has adverse cash flow implications for businesses as well as increased costs if using a shipping agent’s deferment account, plus also risks delaying the goods being released by HMRC until all import charges have been dealt with.

The change from 1 January 2021 will enable the import VAT to be dealt with through a business’s UK VAT return, similar in the manner to which movements of goods from the EU into the UK are currently reported, and mean that UK VAT registered businesses no longer have to physically pay import VAT to HMRC prior to reclaiming it back as input tax – it will all now be dealt with on the same VAT return thus taking away the adverse cash flow implications and simplifying the process.  Somewhat ironic it is a return to a system which was operated previously in the UK in the 1970s.

The pleasing thing about this change is that it is intended to apply to all imports into the UK by VAT registered businesses, and unlike other simplifications linked to Brexit it is not limited solely to trade with the EU.  In anticipation of this welcome change our recommendations for businesses are:

  • Familiarize themselves with this change and also the temporary simplification on import entries from the EU covering the first 6 months of 2021;
  • Consider any changes needed to VAT reporting processes from 1 January; and
  • Review any HMRC Deferment Accounts currently in use and establish whether they are still needed, and if so look to reduce the amount of any bank guarantee (for the notional VAT element).

Links to HMRC’s announcement on 27 July together (here) also with our earlier commentary (here) on the 6 month simplifications for imports from the EU.

If you would like further guidance on this topic, please do not hesitate to contact one of our dedicated VAT specialists: Mark Hetherington, VAT Partner, on 0191 243 6073 or at markhetherington@unw.co.uk; or Ian Coulthard, VAT Senior Manager, on 0191 243 6017 or at iancoulthard@unw.co.uk.

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