Post Brexit VAT and Customs
Rules around Importing and Exporting have changed since Brexit. In this blog we explore the issues around:
EORI Numbers
How Imports and Exports are administered
How Import VAT and Customs Duties are paid
Reclaiming VAT on Imports
GB EORI NUMBERS
A GB EORI Number is required to move goods:
Between Great Britain and the rest of the world (including the EU)
Between Great Britain and Northern Ireland
Northern Ireland and the rest of the world
NB if you are unsure about the validity of your GB EORI Number you can check it here: https://www.gov.uk/check-eori-number
If you need to register a GB EORI number you can do this online here: https://www.gov.uk/eori/apply-for-eori. You will need the following information:
Unique Taxpayer Reference (UTR) - find your UTR if you do not know it
business start dateStandard Industrial Classification (SIC) code - these are in the Companies House register
Government Gateway User ID and password
VAT number and effective date of registration (if you’re VAT registered) - these are on your VAT registration certificate
National Insurance number - if you’re an individual or a sole trader
EU EORI NUMBERS
An EU EORI number is required to export into the EU from Great Britain.
An EU EORI number can be obtained from the customs authorities of any EU member state.
More information can be found here on what the procedure looks like in each EU member state: https://www.customssupport.com/en/news/brexit-where-can-i-get-eori-number-overview-all-eu-customs-authorities
Trading Arrangements, Commodity Codes and Controlled Goods
If you are importing and exporting it may be useful to understand the standardised arrangements for what Customs duties apply and who is responsible for paying Customs duties and VAT.
Importers and exporters of certain 'controlled' goods will also be required have certificates.
A standardised list of arrangements called Incoterms (International Commercial Terms) sets out who is responsible for what at each stage of freight from manufacturer to customer. A full list is available here: https://en.wikipedia.org/wiki/Incoterms#Incoterms_2020
The three most common are:
EXW - where the customer is responsible for collection from the manufacturer's premises, transport to the dock, loading, unloading, paying import duty and tax, delivery to the customer.
DDP - where the supplier is responsible for all the above.
DAP - where the supplier is responsible for delivery but not paying import duty and tax.
If importing or exporting it is important to be clear who is responsible for paying VAT and duty by checking your Incoterms.
If you are Importing these will be found on your agreement with your supplier and if you are Exporting these should be included in your agreement with your customer.
Commodity Codes
Customs Duties are determined by Commodity Codes. It is important to use the correct Commodity Code in order to get goods through Customs smoothly.
The UK provides a database of codes here: https://www.gov.uk/trade-tariff
The EU provides a similar database here: https://ec.europa.eu/taxation_customs/business/calculation-customs-duties/customs-tariff/eu-customs-tariff-taric_en
The duty that is applied is not only determined by the Commodity Code but also:
The quantity being moved across borders
The country receiving the goods
The country the goods are coming from
The country where the goods were manufactured*
*This last criteria concerns the Rules of Origin.
Rules of Origin state that goods manufactured in China, imported to the UK and then exported to the EU will have a different tariff applied to goods manufactured in the UK.
Applying the correct Commodity Code and correctly applying Rules of Origin is a specialist area of tax. We have providers of this expertise we can pass on to you in this area.
Controlled Goods
Certain goods require additional certificates and documentation to pass Customs usually in order to fulfill quality or safety requirements.
Such goods may be required to pass through special Customs facilities called Border Control Posts.
Some of these requirements have been waived as part of the Brexit agreement for a transition period but are being phased in during 2021.
Arrangements for Paying and Reclaiming Import VAT and Duties
There are now three ways that you could arrange to pay Import VAT and Duties and assuming your business is VAT registered different ways that you can reclaim the VAT.
Freight Agent Pays the Import VAT and Duties
You set up a Deferment Account
You use Postponed VAT Accounting
We will deal with each option individually. In each case we will consider:
How the Import VAT and Duty gets paid to HMRC
How the Import VAT gets reclaimed from HMRC
How we account for Import VAT in our bookkeeping
How we account for Duty in our bookkeeping
NB For VAT registered businesses, Import VAT is reclaimable whereas Customs Duty is not. It is however a tax deductible expense.
Freight Agent Pays Import VAT and Duties
Paying Import VAT and Duties - In this scenario the shipping or freight agent pays the Import VAT and Duties. They then send you, the purchasor, a bill itemising the Import VAT, Duty and their admin fee.
Reclaiming the Import VAT - to reclaim the Import Duty HMRC requires you to have a C79 which is a document setting out Import VAT incurred in a period. C79s are issued by customs to the address on file for the EORI number that is attached to the import. C79s will only be issued however if the EORI number is linked to a VAT registered business.
To reclaim the Import VAT it is therefore important that:
Your business has an EORI number that is linked to its VAT registration
The address HMRC has for that VAT registration is up to date
Import paperwork has been prepared using the correct EORI number
Only once you have the C79 should you reclaim the Import VAT. Having the bill from the freight agent is not sufficient.
Accounting for Import VAT - Import VAT is 100% VAT reclaimable. On Xero the correct treatment is: Account - VAT; Tax Rate - VAT on Import.
Accounting for Customs Duty - Customs Duty is considered part of the cost of the purchase. Therefore the category or Account should match the purchase; Tax Rate - Zero Rated Expenses.
Deferment Account
This option requires registering a Deferment Account with HMRC. More detail on how to do this is set out later.
Paying Import VAT and Duties - In this scenario the importer is responsible for paying Import VAT and Duties. The Deferment Account allows the goods to clear customs before the Import VAT and Duty is paid. HMRC takes the VAT and Duty by Direct Debit typically 45 days later. (NB it is possible to use a Postponed VAT for the VAT element and only use the Deferment Account to pay Duty).
Reclaiming the Import VAT - to reclaim the Import Duty HMRC requires you to have a C79 which is a document setting out Import VAT incurred in a period. C79s are issued by customs to the address on file for the EORI number that is attached to the import. C79s will only be issued however if the EORI number is linked to a VAT registered business.
To reclaim the Import VAT it is therefore important that:
Your business has an EORI number that is linked to its VAT registration
The address HMRC has for that VAT registration is up to date
Import paperwork has been prepared using the correct EORI number
Only once you have the C79 should you reclaim the Import VAT. Having the bill from the freight agent is not sufficient.
Accounting for Import VAT - Import VAT is 100% VAT reclaimable. On Xero the correct treatment is: Account - VAT; Tax Rate - VAT on Import.
Accounting for Customs Duty - Customs Duty is considered part of the cost of the purchase. Therefore the category or Account should match the purchase; Tax Rate - Zero Rated Expenses.
Postponed VAT
Unlike Deferment, Postponed VAT does not require any application or special account to be set up.
Paying Import VAT and Duties - All imports require a declaration which is done through a system called CHIEF or the Customs Declaration Service. If declarations are logged under Postponed VAT , the goods are then released without you or the freight agent paying import VAT. However the Duty will still need to be paid by the freight agent or Deferment Account - see above.
Reclaiming the Import VAT - Here the VAT is both charged and reclaimed on the VAT return itself with a Net Zero effect. Since no money is paid to HMRC which then needs to be reclaimed on a VAT return, this option is very attractive for cash flow.
Accounting for Import VAT - Assuming the Customs Declaration was completed as a Postponed VAT import, HMRC will produce a report called MPIVS which can be accessed from HMRC Government Gateway: https://www.gov.uk/guidance/get-your-postponed-import-vat-statement. Import VAT is then declared in Box 1 and Box 4 of the VAT return. No C79 is needed.
Accounting for Customs Duty - The PVA cannot be used for Customs Duty which is then dealt with in the usual way. Customs Duty is considered part of the cost of the purchase. Therefore the category or Account should match the purchase; Tax Rate - Zero Rated Expenses.
Our Recommendation
Our recommendation for all clients it to use Postponed VAT to deal with VAT on Import and a Deferment Account to deal with Customs Duties.
In both cases there is a clear Cash Flow advantage and the admin of paperwork is likely to go smoother in both cases.
NB A Deferment Account may be required by some overseas vendors.
Registering a Deferment Account
A Deferment Account gets created by an application process with HMRC. The application is done online starting with this page: https://www.gov.uk/guidance/apply-for-an-account-to-defer-duty-payments-when-you-import-or-release-goods-into-great-britain
Click on the link in 'Apply for a duty deferment account and optional guarantee waiver'.
An EORI Number will need to be in place. Depending on the business's credit rating different guarantees for the deferred VAT and duty may be required.
