However, my client is looking to make use of Postponed VAT Accounting and we need to understand how the VAT should be accounted for within the VAT return. Please can you confirm what the correct treatment is?
The Postponed VAT Accounting (PIVA) system for imported goods was introduced on 1 January 2021 and allows VAT registered businesses to declare and, subject to the normal rules, reclaim import VAT on the same VAT return.
This avoids VAT being paid to HMRC on import and the business having to reclaim through its VAT return, often months later, and so assists with cashflow.
Under the flat rate scheme (FRS), VAT cannot be recovered on goods purchased or imported for resale, as an allowance for input tax is inbuilt in the flat rate percentages used to calculate the VAT payable.
If PIVA is not used a business will pay import VAT when goods arrive in the UK. Flat Rate Scheme traders cannot recover this VAT (unless they acquire capital goods items over the £2000 threshold).
Currently when the PIVA system is used, HMRC guidance for FRS states:
‘You must add the value of the imported goods to the total of all your supplies, before you do the scheme calculation’.
Whilst the guidance is not very clear, the ‘value’ is understood to be the net value of the goods.
This means that the total value of imported goods should be included in the Flat Rate turnover in box 6. The VAT paid on the imported goods would be determined using the appropriate Flat Rate percentage and included within the box 1 figure.
Recent HMRC guidance (Revenue and Customs Brief 03 2022), has reviewed the way in which PIVA is calculated within the FRS, which is to take effect from 1 June 2022.
Businesses must adopt the new guidance for VAT Return periods that start on or after 1 June 2022. The correct treatment under the legislation excludes the value of imported goods from the Flat Rate Scheme calculation completely.
The full amount of import VAT should be added to box 1 only, after the flat rate calculations have been completed. This means that businesses using the FRS will then pay the same amount of import VAT regardless of what type of business they are. (Vat notice 733 section 6.5 refers)
There will be no requirement to include any value in box 6 relating to the PIVA transaction.
Any amounts that may have been due to HMRC, had the correct treatment been in place, for periods starting before 1 June 2022 will not be collected and businesses will not be penalised in relation to those amounts. In these circumstances, businesses do not need to amend previously declared returns.
If any businesses have overpaid HMRC while they have been adopting the incorrect treatment before the VAT Flat Rate Scheme changes were announced, they should look to recover these amounts using the standard error correction methods.
More information on the Flat Rate Scheme can be found in
R&C brief 3 2022
https://www.gov.uk/government/publications/revenue-and-customs-brief-3-2022-postponed-vat-accounting-and-businesses-registered-under-the-flat-rate-scheme/revenue-and-customs-brief-3-2022-postponed-vat-accounting-and-businesses-registered-under-the-flat-rate-scheme
Public notice 733 – flat-rate-scheme-for-small-businesses
https://www.gov.uk/government/publications/vat-notice-733-flat-rate-scheme-for-small-businesses/vat-notice-733-flat-rate-scheme-for-small-businesses#section6
Vat-accounting-scheme – imports
https://www.gov.uk/guidance/complete-your-vat-return-to-account-for-import-vat#if-you-use-a-vat-accounting-scheme
You can also find more information about working out the VAT due on sales in VAT Notice 700/12.
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