What is postponed VAT accounting and how does it work?

Importing goods into the UK can create cash flow challenges for businesses, especially when VAT is due at the border. Postponed VAT accounting (PVA) allows VAT-registered businesses to manage import VAT more efficiently by accounting for it on their VAT return rather than paying it upfront. This guide explains what postponed VAT accounting is, who can use it, and how it works in practice.

When the UK left the European Union, new customs and VAT rules were introduced for goods imported from both the EU and the rest of the world. To prevent cash flow disruption for importers, HMRC created postponed VAT accounting. It gives VAT-registered businesses the ability to record import VAT on their VAT return instead of paying it immediately at the point of entry.

Understanding postponed VAT accounting

Under traditional import VAT rules, businesses paid VAT when goods arrived in the UK before they could be released from customs. This often meant paying VAT months before the next VAT return, tying up cash unnecessarily.

Postponed VAT accounting removes this problem. Instead of paying import VAT to HMRC upfront, you record both the VAT you owe and the VAT you can reclaim on the same return. In most cases, these two amounts cancel each other out, leaving no actual cash payment due.

This approach mirrors the way VAT is handled for domestic transactions and keeps cash flow neutral for most importers.

Who can use postponed VAT accounting

All VAT-registered businesses in the UK can use postponed VAT accounting for imported goods, regardless of the country they come from. There is no need to apply or seek prior approval from HMRC.

You can use postponed VAT accounting if:

  • You are VAT registered in the UK.

  • The goods are imported into the UK for use in your business.

  • You include the import on your VAT return using the correct boxes.

It applies to goods imported from both the EU and non-EU countries. For businesses not registered for VAT, import VAT must still be paid at the border as before.

How postponed VAT accounting works

When you import goods, the process involves a few key steps:

  1. Declare the goods to HMRC
    When completing your customs declaration, select the option to account for VAT on your VAT return. This informs HMRC that you are using postponed VAT accounting.

  2. Receive your monthly postponed import VAT statement
    HMRC generates a monthly statement showing the total import VAT postponed for that month. You can download it from your Government Gateway account.

  3. Record the import VAT on your VAT return
    You then record the VAT owed as output tax and the same amount as input tax, provided the goods are used for taxable business purposes.

For example, if you import goods worth £10,000 and the applicable VAT rate is 20%, your postponed VAT statement will show £2,000 of import VAT. On your VAT return, you record £2,000 as output tax (in Box 1) and £2,000 as input tax (in Box 4).

The net effect is zero, but the transaction is fully accounted for and reported to HMRC.

Where to record postponed VAT on your VAT return

When completing your VAT return, postponed VAT accounting affects the following boxes:

  • Box 1: Include the total VAT due on imports for which you are using postponed VAT accounting.

  • Box 4: Include the same amount as input tax if the goods are for business use.

  • Box 7: Include the total value of imported goods excluding VAT.

It is important to ensure that the figures in your VAT return match the totals shown on your monthly postponed import VAT statement. Discrepancies could lead to questions from HMRC.

Benefits of postponed VAT accounting

The main advantage of postponed VAT accounting is improved cash flow. Businesses no longer need to pay import VAT upfront and then wait to reclaim it. Other benefits include:

  • Simplified accounting for imports from both EU and non-EU countries.

  • Immediate recovery of input VAT through the same VAT return.

  • Reduced administrative burden for customs clearances.

  • No delays caused by VAT payments at the border.

This system is particularly beneficial for businesses that import frequently or in high volumes, as it removes the need to fund VAT temporarily.

Example of postponed VAT accounting in practice

A UK-based retailer imports clothing from France valued at £50,000. Under normal rules, they would have to pay £10,000 VAT at the border (20% of £50,000) before the goods were released.

By using postponed VAT accounting, the retailer does not pay VAT immediately. Instead, the £10,000 appears on their postponed VAT statement. On their next VAT return, they record £10,000 in Box 1 as VAT due and the same £10,000 in Box 4 as VAT reclaimed. The two amounts offset each other, so no payment is made, and cash flow remains unaffected.

Accessing your postponed VAT statements

Each month, HMRC makes your postponed VAT statements available online through your Government Gateway account. These statements are usually ready around the sixth working day of the following month and remain accessible for six months.

You must download and save each statement for your records, as HMRC does not reissue them. The figures from these statements should match the VAT values declared on your return.

Keeping these statements is essential to demonstrate accurate reporting if HMRC ever reviews your VAT records.

Common mistakes to avoid

Businesses using postponed VAT accounting should be aware of common errors such as:

  • Forgetting to download monthly statements and losing access after six months.

  • Entering figures in the wrong boxes on the VAT return.

  • Failing to use postponed VAT accounting consistently for all qualifying imports.

  • Claiming input VAT on goods used for exempt or non-business activities.

Regular reconciliation of import VAT values against customs documentation and postponed VAT statements helps prevent errors.

Record keeping requirements

HMRC requires businesses to keep full records of all imports where postponed VAT accounting has been used. This includes:

  • Customs declarations and import entries.

  • Monthly postponed VAT statements.

  • Supplier invoices and shipping documents.

These records must be retained for at least six years and stored in a readable format. Digital storage through your accounting software or secure cloud systems is acceptable under Making Tax Digital rules.

Who should consider using postponed VAT accounting

Postponed VAT accounting is beneficial for most VAT-registered importers, but it is especially useful for:

  • Businesses importing regularly from the EU or beyond.

  • Retailers with high-volume shipments.

  • Manufacturers relying on imported raw materials.

  • Companies looking to improve cash flow or reduce customs delays.

If your business is new to importing or you are unsure how to activate postponed VAT accounting on customs declarations, your freight agent or accountant can help set it up correctly.

Conclusion

Postponed VAT accounting allows VAT-registered UK businesses to account for import VAT through their VAT return rather than paying it at the border. This approach simplifies international trade, improves cash flow, and aligns with Making Tax Digital processes.

By understanding how to record postponed VAT correctly, keeping monthly statements, and ensuring accurate VAT returns, businesses can manage their import VAT efficiently while staying fully compliant with HMRC requirements.