What is postponed VAT accounting and how can it help my business?

Since the UK’s exit from the EU, managing imports has become a more significant administrative and financial task. One of the biggest immediate challenges was cash flow, as businesses often had to pay import VAT immediately when goods arrived, thus tying up essential funds. Postponed VAT accounting (PVA) is the system designed to solve this problem.

Introduced after Brexit, this system changes how you account for VAT on imported goods. Instead of making the payment upfront, postponed VAT accounting (PVA) allows you to declare and reclaim import VAT on the same VAT return, netting a significant cash flow benefit. This guide helps finance, procurement, production and other department managers and business owners understand and apply PVA effectively.

Who can use postponed VAT accounting?

Any VAT-registered business in the UK can use postponed VAT accounting. It applies to goods imported into Great Britain (England, Scotland, Wales) from any other country. It also covers goods imported into Northern Ireland from outside the UK and the EU.

You can use it for all goods imported for your business. Though you do not need special authorisation from HMRC to start, you must follow specific steps in your customs process, which we’ll see below.

This system is designed to cover only import VAT, and does not apply to other customs duties.

How does postponed VAT accounting actually work?

Using the scheme links your customs declaration to your VAT return.

What do I need to do before importing?

First, you need a UK Economic Operators Registration and Identification (EORI) number starting with ‘GB’. You cannot import goods without one.

The most critical step is to tell your customs agent or freight forwarder that you want to use postponed VAT accounting. You must make this clear for every shipment. They will then enter this information on your customs declaration.

What happens after the goods arrive?

Once your goods clear customs using PVA, HMRC records the import VAT due but will not send you the bill. Instead, this information is compiled into a Monthly Postponed Import VAT Statement (MPIVS).

This statement is available for download from the government’s Customs Declaration Service (CDS) portal. This is the only source for this information, and you will have to log into the digital portal, with cookies enabled, in order to get to your statements.

Your monthly statement will show the total import VAT postponed for that month, which you need in order to properly complete your VAT return.

How do I complete my VAT return using the statement?

This is the accounting part of postponed VAT accounting. You will need to use the figures from your monthly document to fill out your VAT return as follows:

• Box 1 (VAT due on sales): Include the total VAT shown on your monthly statement.

• Box 4 (VAT reclaimed on purchases): Reclaim this same amount of VAT as input tax (subject to normal rules).

• Box 7 (total value of purchases): Include the total net value of the goods (before VAT was added).

For most businesses, the entries in Box 1 and Box 4 will be the same, making the net effect on your VAT payment zero. The real benefit is that this sum hasn’t left your bank account while you wait months for a refund.

What are the main benefits for my growing business?

The primary benefit is the significant improvement in your cash flow management. By avoiding VAT at the border, that cash remains free for other business needs, like paying staff or investing in growth.

It also simplifies your processes, much like a good expenses management system, by consolidating multiple payments into one predictable workflow.

Instead of managing multiple VAT payments, you handle everything in one consolidated process via your existing VAT return. This cash-flow advantage, effective after December 2020, is a key part of post-Brexit international trade policy.

What are the special rules for Northern Ireland?

Trade involving Northern Ireland is a little more complex.

• Goods from EU to NI: Postponed VAT accounting is not used for goods moving from an EU country (like Ireland) to Northern Ireland, and normal EU rules apply.

• Goods from GB to NI: You may be able to use PVA for goods moved from Great Britain to Northern Ireland, depending on the goods.

• Goods from the rest of the world to NI: For goods imported into Northern Ireland from a non-EU country, you can use postponed VAT accounting as you would in Great Britain.

The rules for NI trade are specific. You can find the most current information on the government’s page for trading and moving goods in and out of Northern Ireland.

What are common mistakes to avoid?

While PVA is a great tool, it’s easy to make costly mistakes.

1. Not downloading the statements: You cannot estimate the VAT on your own. You must use the figures from your official government statement.

2. Forgetting to tell your agent: If you fail to instruct your customs agent, they will likely default to the old method, and you will receive a demand for an upfront VAT payment.

3. Using the wrong month: You must use the statement that corresponds to the VAT return period you are completing.

4. Not keeping adequate records: The monthly statements are part of your VAT records. You need to download and keep them for at least six years.

Dealing with all this is similar to other HMRC processes, like managing PAYE for employers, where accurate, timely reporting is essential in order to avoid HMRC fines or penalties.

How can technology help manage VAT and payroll?

For a growing business, managing tax obligations and HR compliance is a huge task. The complexities of using systems such as postponed VAT accounting, combined with those of running payroll, can stretch teams thin.

This is where integrated technology and reliable support become critical. Freeing your teams from manual data entry and basic accounting allows them to focus on more strategic tasks like financial planning and customs compliance, and building an effective reward strategy.

This is why many businesses seek to streamline their processes, for example by automating payroll compliance.

While your payroll software may not file your VAT return, it remains a critical piece of your financial health.  With the added complexity of international trade just one challenge facing modern managers, a modern payroll system ensures your largest expense is managed accurately.

This is where integrated technology and reliable support become critical, enabling the kind of close HR and finance collaboration that strategic growth demands.

Want to experience the future of payroll?

Book a demo