Import VAT - what you need to know
We receive many questions regarding import VAT and how to claim it back, so here is a summary of what it is, how it is claimed and how it may change when we leave the EU.
What is the difference between goods coming from the EU and outside the EU?
Currently, goods brought into the UK from outside the EU are classed as imports for VAT purposes. This is different to goods brought into the UK from the EU, which are classed as acquisitions, as the UK is part of the single market. This distinction is important as it affects how you pay VAT on goods.
When is import VAT charged?
Import VAT is charged at the point the goods are imported into the UK, unless you are using a deferment account (further details below).
The value liable to import VAT is the value (typically the price paid but there are other valuation rules) plus transport, insurance, packaging, customs and excise duties and other charges payable on import to the UK.
Considerations prior to importing goods into the UK
If you are trading goods with countries outside the EU, you must first obtain an Economic Operator Registration and Identification (EORI) number. This number is quoted on the import declaration sent to HMRC. An import declaration is legally required for all goods imported into the UK from outside the EU. Import declarations are typically made using the Single Administrative Document (SAD), also known as form C88.
If you use a customs broker, freight forwarder or logistics provider it is likely that they will submit import declarations on your behalf as part of their service. It is important to ensure your EORI number is quoted on the import declaration as this will generate your import VAT certificate (see below).
Evidence for import VAT recovery
To reclaim import VAT you will need an import VAT certificate (C79). This is automatically generated by HMRC if your EORI number is quoted on the import declaration. This is the only evidence which can guarantee import VAT recovery (in line with the normal input tax rules). However, HMRC may still permit import VAT recovery under alternative evidence provisions in the absence of a C79 but advice should be taken prior to reclaiming import VAT without a C79.
The C79 import VAT certificate is sent in the post and should be received around the 24th of each month following imports declared in the previous month. For example, a C79 for goods imported in January will be received around 24 February. HMRC posts the certificate to the principal place of business address on their system so it is important that you ensure any changes to your details are communicated to HMRC.
When is import VAT recovered?
Import VAT is recovered through the VAT return in the same way as VAT incurred on local purchases. The import VAT incurred is included in box 4 of the VAT return as input tax and the net amount in box 7 of the VAT return.
As import VAT is charged at the point the goods enter the UK but not recovered as input tax until the VAT return is submitted many businesses new to importing may suffer cash flow issues. To mitigate this, it is possible to use a VAT and duty deferment scheme which allows business to defer paying import VAT until after the goods are imported into the UK. The average delay is 30 days. However, businesses using the scheme must provide HMRC a bank guarantee that can meet the cost of import VAT and duties.
What changes if the UK leaves the EU without a deal?
If the UK leaves the EU on 29 March 2019 without a deal, there will be changes to how import VAT is treated. Goods entering the UK from the EU will no longer be classed as acquisitions and will instead be classed as imports. Therefore, import VAT would also be due on goods entering the UK from the EU.
HMRC have already confirmed that postponed accounting will be introduced for imports if the UK leaves the EU without a deal. This means that import VAT will be paid and reclaimed through the VAT return, rather than at the point the goods enter the UK. This will apply to both imports from the EU and from outside the EU.
If you have any questions regarding import VAT and how to manage imports to ensure cash flow is maximised please contact our VAT partner, Alison Birch, below.