HMRC assistance with PVA VAT reconciliations

19th March 2021

By Steve South, Partner

Now we have a Brexit deal, we are in the midst of moulding our relationship with the EU. While details are being worked on, here are our tips for importing/exporting …

We wrote in January about how the rules have changed regarding VAT (view article here). Since then, as tax advisers, we have helped companies with their specific requirements as individual needs vary and some are more complex than others.

The Brexit agreement also affects import duty and the rules of origin, which businesses should understand in order to ensure they have the most cost-effective and efficient import and export systems.

Postponed Import VAT Accounting (PVA)

As outlined in our previous article, purchases of goods from EU member states are now classed as imports. This means that VAT is no longer declared in Box 2 of the VAT return. A new system called ‘Postponed Accounting’ has been implemented, which covers most imports received except low-value consignments.

If you already have a government gateway for HMRC, and a linked EORI number, the Monthly Postponed Import VAT Statements (MPIVS) should be available by the 6th of each month. These can be useful to reconcile imports against the VAT reverse entries in the VAT return for each quarter, as it’s completed.

It’s important to keep your MPIVS – you will need to remember to download them within six months from issue as they are only available online for six months.

NOTE: HMRC have reported a glitch on the first run of MPIVS (covering imports in January), saying some might include some February imports too. If this has happened, remove the February imports and save them for your February VAT return.

Rules of Origin

The basic ‘Rules of Origin’ are fairly straightforward. For example, if a UK company imports from, say, the USA but then forwards goods to an EU member state, then the origin of those goods would be the US.

But it can get more complicated if a business imports something from, say, the US, that it then turns into something else before shipping it to the EU. If the original product has changed sufficiently in the UK then the origin may change to GB. There can be many technicalities involved depending on the scenario but it is important to sort them out, to save costs later.

Duty free deal

The import duty free deal is, theoretically, fairly simple for goods moving from the UK to the EU, or vice versa, which are of UK or EU origin.

Your UK business might, however, import goods that aren’t of UK or EU origin, to sell on in the EU. Import duty will apply to those goods when they’re received in the UK – but the duty could be applied again by customs when they arrive in the EU country. The importer of record is liable for paying the import duty and this may not be your company but your end customer in the EU. They may find themselves having to pay this, plus the purchase price and VAT – which could make it all rather expensive.

There may be ways around this – it might be possible to ‘cut out the middle man’ and send goods direct rather than importing them into the UK first. Or a business could hold some goods in the EU for EU-based customers, rather than sending from the UK.

Commodity codes and Incoterm instructions

To avoid delays and ensure the right people know what to do/pay when transporting goods businesses should:

• Ensure correct commodity codes are recorded that determine the duty payable.
• Provide freight (Incoterm) instructions.

The government was handling many aspects of the import/export scenario for SME firms for the last 40 years but now firms are having to figure this out and do the paperwork. We hope HMRC may help with more infrastructure for filing VAT abroad and further general support in the future.

Meanwhile, if you would like to discuss any aspects of importing and exporting after Brexit, please get in touch.

 

About the author

Steve joined Wise & Co in 1989 where he trained and qualified as a chartered accountant. He is now a general practice partner, as well as the firm’s IT partner. Steve’s experience spans a range of industry sectors and businesses of varying sizes. VAT and property remain of particular interest to him and he has advised many investors and developers alike on VAT planning and recovery. He has also been involved with many mergers and acquisitions and has assisted clients with the sale of their businesses.

 

 

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