If you run a business in the UK that imports goods, VAT can feel like a complex puzzle to get on top of at times. One piece of that puzzle is postponed VAT accounting (a.k.a. PVA), a system that’s been a game-changer since Brexit shook up trade rules in Europe.

But what is postponed VAT accounting, and how does it affect you? This article breaks it down – explaining how it works, when to use it, and what it means for your cash flow.

We’ll even throw in a postponed VAT accounting example to make it crystal clear, so you can figure out if it’s the right move for your imports.

Before we explore postponed VAT accounting, let’s set the scene. When you bring goods into the UK from outside the country, you usually pay import VAT.

This is a tax on the value of those goods, charged at the border by HMRC. Before 2021, businesses paid this VAT upfront when goods arrived, then reclaimed it later on their VAT return.

That tied up money, especially for firms importing large shipments. Post-Brexit, with the UK leaving the EU, new options came along in an attempt to ease that burden.

What is postponed VAT accounting?

So, what is postponed VAT accounting? It’s a method that lets UK businesses delay paying import VAT at the border for goods worth more than £135.

Instead of handing over the VAT when goods clear customs, you record it in your VAT return and settle it later. You still pay the same amount, but the timing shifts – this could help your cash flow and make importing smoother for VAT-registered businesses.

When your goods arrive, you get a monthly statement from HMRC showing the import VAT due.

You don’t pay it then and there. Instead, you log that amount in your VAT return as both input tax (what you owe) and output tax (what you reclaim), assuming you can claim it back.

The two should balance out, so no cash leaves your account upfront. You need a VAT registration number and approval from HMRC to use this, but once you’re set up, it’s straightforward.

Postponed VAT accounting example

Let’s walk through a postponed VAT accounting example. Say you import £10,000 worth of goods in April.

  • The VAT rate is 20%, so the import VAT is £2,000. Normally, you’d pay that £2,000 at the border, then wait to reclaim it on your next VAT return.
  • With postponed VAT accounting, you skip the upfront payment – instead, your April HMRC statement shows the £2,000.
  • You enter it in your May VAT return under input and output tax. If you sell those goods and charge VAT, it nets off – no cash is locked up and your business keeps moving.

For wide reading, check out our recent guide on VAT cash accounting, which also has benefits for business cash flow and record keeping.

Who can use it?

Not every business qualifies. You need to be VAT-registered in the UK, which rules out sole traders or small firms below the £90,000 threshold (at the time of writing) who haven’t signed up.

It applies to goods from anywhere outside the UK, whether that’s the EU, Asia, or the US. If you use a customs agent, they need to know you’re opting for this system, so tell them early.

It’s also worth checking your goods – some, like alcohol or tobacco, have special rules that might complicate things.

Businesses in Northern Ireland remain within the EU VAT area, so they do not have to pay import VAT on goods brought in from the EU.

The reverse charge continues to apply. Northern Ireland businesses can still use postponed VAT accounting for imports from countries outside the EU.

When to account for import VAT

Timing is everything with import VAT. With postponed VAT accounting, you account for it in the VAT period that matches your monthly statement from HMRC.

These statements arrive around the 6th or 7th of each month, covering the previous month’s imports. You then include that figure in your next VAT return, due by the 7th of the following month.

For example, goods imported in June show up in your July statement, and you report them in your August return. Keeping on top of deadlines should prevent any penalties.

Before you do this, we also recommend reading our guide on accounting errors – how to avoid them.

Advantages: Benefits for your business

Why bother with this system? The big win is cash flow.

Paying VAT upfront can sting, especially if you import often or in bulk. By postponing it, you hold onto that money until your VAT return, which might be weeks or months later.

It’s like a short-term loan from HMRC, interest-free. For growing businesses, this can mean more cash for stock or wages.

Plus, it cuts admin – fewer payments to track at the border simplifies your books.

Disadvantages: Potential downsides to watch

It’s not all smooth sailing. You need tight records to match HMRC statements with your returns, or errors can trip you up.

If you’re not reclaiming all your VAT – say, because some goods are exempt – you’ll still owe the difference, which needs planning. Late returns or missed deadlines can lead to fines too.

It’s a system that rewards organisation, so if your paperwork isn’t sharp, you might struggle.

Setting it up with HMRC

Getting started is simple. If you’re VAT-registered, you can opt in by telling your customs agent or filling out the right forms if you handle imports yourself.

  • Use your EORI number (Economic Operators Registration and Identification) when goods arrive. 
  • Provide your Your UK VAT registration number (VRN)
  • Tick the box for postponed VAT accounting on customs declarations, a ‘G’ in box 47e for the method of payment for import VAT.

HMRC then knows to skip the upfront charge. Double-check with your accountant to make sure it fits your setup – some firms pair it with other schemes like customs warehousing.

Comparing it to other options

Before Brexit, businesses often used VAT deferment accounts to delay import VAT. You’d pay monthly via direct debit, but it still needed a bank guarantee.

Postponed VAT accounting ditches that hassle – no guarantee, no upfront hit. For EU imports pre-2021, VAT was handled differently, but now this system applies across the board.

If you’re a small importer, paying at the border might still work, but for regular shipments, postponing wins on ease.

Final thoughts: Postponed VAT accounting

Should you use postponed VAT accounting? Ask yourself a few things.

Do you import enough to feel the cash flow pinch? Are your records solid enough to handle monthly statements? Can you reclaim most of your VAT? If yes, it could be a contender.

We hope you found this guide useful. For other helpful articles, browse through our blog – articles include:

The team at Accountants East London have over 30 years of experience and no matter your accountancy needs or business type, they can help.

Please feel free to contact us for any enquiries – we look forward to hearing from you.