Postponed VAT Accounting: What Is It and How Does It Work?

In short: Postponed VAT Accounting (PVA) lets importers declare and recover import VAT on their VAT return instead of paying it upfront at customs. This improves cash flow and cuts paperwork. The UK, Norway and most EU countries offer Postponed VAT Accounting, and France introduced it in 2022.

If you sell and import internationally, VAT (Value Added Tax) can bring extra challenges. One of them is the cash flow impact of paying VAT on imported goods. To solve this, many countries have introduced Postponed VAT Accounting (PVA). In this post, we look at what postponed VAT accounting is, how it works and its benefits.

What is Postponed VAT Accounting?

Postponed VAT Accounting lets you account for and recover import VAT on your VAT return, instead of paying it upfront when you import. Normally, when goods are imported into a country, VAT is due at once or shortly after the goods arrive.

Paying import VAT upfront can put a big strain on your cash flow, especially if you import often. With Postponed VAT Accounting, you can defer the payment of import VAT and manage your cash flow better. Read more in our guide: What is a VAT Loan? A Guide for UK Businesses.

The United Kingdom and Norway both have Postponed VAT Accounting, as do most countries in the European Union. France introduced this import VAT option in 2022. For a full country overview, see our Norway VAT manual.

How does Postponed VAT Accounting work?

Postponed VAT Accounting works by letting eligible businesses account for import VAT as a reverse charge on their VAT return, instead of paying it at import. You declare and recover import VAT on the same VAT return. This improves cash flow, as you avoid paying VAT upfront at customs. The process varies from country to country, but it generally involves these steps:

Goods importation and account for import VAT

You import goods from a non-EU country into an EU Member State, or from a non-UK country into the UK. The goods are subject to import VAT and possibly customs duties. If your customs declarations are deferred, you must estimate the import VAT.

Postponed VAT Accounting declaration and monthly import VAT statement

When you import, you make a declaration to the customs authorities on the right customs declaration form. This declaration shows that you plan to account for the import VAT through postponed VAT accounting.

VAT return

How you declare postponed import VAT depends on the country, but it works much like the reverse charge mechanism. On your VAT return, you include the import VAT as both output VAT and input VAT. You'll find the relevant deferred VAT payments on your monthly Postponed VAT Accounting statement. For a closer look, see Importing products into the EU: Stay up-to-date with reverse charge rules.

Here's an example of how Postponed VAT Accounting would work in practice in the UK:

• You import a shipment of electronic goods worth £10,000 from a non-UK country into the UK.
• You complete the customs declaration. It gives all the required details about the goods, their value, and the import duties and VAT that apply.
• Say the UK import VAT is £2,000. Instead of paying it upfront, you choose to account for it through PVA.
• On your regular VAT return, you include the UK import VAT as a reverse charge. It goes in Box 1 (VAT due on sales and other outputs) and Box 4 (VAT reclaimed on purchases and other inputs).
• The UK import VAT amount is added to your liability for the period, which you will need to settle when making your regular VAT payment.

What are the benefits of Postponed VAT Accounting?

The main benefits of Postponed VAT Accounting are better cash flow, less paperwork, stronger competitiveness and a smoother supply chain. It helps sellers who import goods into the EU and/or UK, as you can declare and recover import VAT without paying it at once:

Improved cash flow

Postponed VAT Accounting lets you defer import VAT, so you avoid paying it straight away. This improves your cash flow. It can help most if your business relies heavily on imported goods.

Less paperwork

Postponed VAT Accounting reduces the admin work of VAT on imports. You no longer need to make a separate VAT payment for each import. Instead, you account for import VAT on your regular VAT return.

Enhanced competitiveness

Postponed VAT Accounting can make your business more competitive internationally. You don’t need to pay VAT on imports straight away. This can be a big advantage if you work on a tight budget or have limited working capital.

Improved supply chain efficiency

Postponed VAT Accounting simplifies how you pay VAT, which can make your supply chain run more smoothly. It reduces delays and admin problems, so you can receive your imported goods faster.

What are the common challenges and pitfalls?

The common challenges with Postponed VAT Accounting are record-keeping, deadlines, complex rules and accurate import VAT figures. PVA can simplify importing and improve cash flow, but watch out for these pitfalls:

• Accurate record-keeping: Keep accurate records of your imports, including customs declarations, invoices and VAT returns. Wrong records can lead to errors and delays in recovering import VAT. This can affect your cash flow and compliance.
• Meeting deadlines: Make sure you meet the deadlines for filing your VAT return and paying any import VAT due. Late filings or payments can lead to penalties and interest, which can be costly for your business.
• Understanding VAT rules and regulations: VAT rules can be complex, so you need to understand how they apply to your business. Talk to a VAT expert if you’re unsure about any part of postponed import VAT accounting. This can help you avoid mistakes and stay compliant.
• Estimating import VAT: If you delay your customs declarations, you’ll need to estimate the import VAT due. Make your estimates accurate to avoid errors or penalties. This needs a good understanding of your imports and the VAT rates that apply.
• Total import VAT: Make sure you account for the total import VAT postponed for the previous month. This includes any import VAT that was paid upfront or deferred. Accurate accounting avoids gaps and keeps your VAT return correct.
• Import VAT statements: Access and review your import VAT statements regularly. They show the total import VAT postponed for the previous month and help you account for import VAT correctly on your VAT return. Regular reviews help you spot issues early and fix them.

If you know these common pitfalls, you can use Postponed VAT Accounting well and avoid errors or penalties. This helps you manage your cash flow better and stay compliant with VAT rules.

Is Postponed VAT Accounting worth using?

Yes. Postponed VAT Accounting is a valuable tool if you trade internationally, as it helps you manage cash flow and simplifies paying VAT. You defer import VAT and include it on your VAT return. If you are an eligible seller, this helps you run your operations smoothly, stay competitive and improve your overall finances.

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