Postponed VAT accounting: How it works for Irish businesses

The transition period following the UK’s withdrawal from the European Union (EU) ended on 31 December 2020. Following Brexit, the UK is now a ‘third country’ for the purposes of VAT and customs with the Republic of Ireland.

This means that since 1 January 2021, the UK is no longer a part of the EU’s Single Market and Customs Union, which has implications around VAT for businesses operating in the Republic of Ireland that import from the UK.

The Irish government has introduced a facility called postponed VAT accounting for VAT registered businesses to avoid the payment of import VAT at the point of entry. Many EU states already offer similar measures for VAT imports.

The new measure – which comes under section 53A of the Value-Added Tax Consolidation Act 2010 and the Value-Added Tax Regulations 2010 (Regulations 14A) (Amendment) Regulations 2020 – allows you to record the VAT on your VAT return rather than paying it at the point of entry into the State.

The legislation allows for ‘accountable persons’ in Ireland who acquire goods from countries outside of the EU VAT area to use the postponed accounting facility.

This article will give small and medium-sized businesses in Ireland that import goods from the UK advice on postponed VAT accounting after 1 January 2021.

It covers the following topics:

What is postponed VAT accounting?

What it means for your business if you trade with Northern Ireland

How does postponed VAT accounting work?

What VAT rate do you need to pay?

What you need to know if you trade with Great Britain

What is postponed VAT accounting?

It’s a facility introduced by the Irish government for businesses registered for VAT in Ireland that import goods from Great Britain (England, Scotland and Wales). Separate procedures exist for trading between the Republic of Ireland and Northern Ireland.

Prior to 1 January 2021, companies importing goods into Ireland from non-EU countries paid import VAT at the point of entry unless they had a deferment arrangement with Revenue.

While the VAT could be reclaimed later, the delay could cause cash flow problems for businesses that are already struggling with restrictions around the coronavirus (COVID-19) pandemic.

Siobhan McCreesh, Associate Director with PKF-FPM Accountants, explains that under the VAT rules for importing goods from ‘third countries’ where goods are subject to import VAT at the point of entry “the gap between payment and reclaiming import VAT could have a significant impact on the cash flow position of Irish businesses”.

Under the new measure, rather than paying import VAT immediately and claiming it on the subsequent VAT return, the VAT amount is entered as an input and output on the same return.

McCreesh explains that the measure “will allow import VAT to be paid and reclaimed on the VAT return in the period that the import takes place, eradicating the need to pay upfront and reclaim at a later date”.

What it means for your business if you trade with Northern Ireland

Under the Northern Ireland Protocol, special rules apply to trade between Ireland and Northern Ireland, which means there won’t be significant changes to the current situation.

The VAT rules stay the same for goods but not services.

According to the Revenue Commissioners, postponed accounting will not apply to goods brought in from Northern Ireland. These purchases will be treated as EU intra-community acquisitions as is the current situation.

How does postponed VAT accounting work?

When importing goods into Ireland from Great Britain, you should record the import VAT in your VAT return for the current period using the ‘reverse charge’ accounting procedure.

This is similar to the way that import VAT is handled on imports from other EU member states.

Under the measure, businesses that import from Great Britain can avail of postponed accounting for VAT by filling in the relevant fields on their VAT return – this allows you to declare and reclaim the VAT amount on the same return.

What VAT rate do you need to pay?

Imported goods are liable to VAT at the same rate that applies to similar goods sold within the State. If you import goods that are zero-rated within the State – this includes most food products, children’s clothing and printed books –these are also zero-rated at importation.

The standard VAT rate was reduced from 23% to 21% under the July Job Stimulus and will be in effect until 28 February 2021.

VAT is calculated on the value of the goods plus any duty that applies. Find out more about VAT rates and how to calculate what you owe via the Revenue website.

What you need to know if you trade with Great Britain

If your business imports goods from Great Britain and/or another non-EU country, you should ensure your systems are updated and can handle the transactions so VAT will be accounted for under the new postponed VAT procedure.

Timely reporting of VAT is advised and care should be taken to enter transactions in the correct VAT return period as an error could lead to an underpayment, which could incur interest and penalties.

The VAT 3 return form has been amended to include an additional field for postponed accounting – PA1 – to capture the value of goods imported under the postponed accounting measure (net plus carriage, insurance and freight).

The VAT is then accounted for at T1 and T2 (subject to the usual deductibility rules).

The VAT Return of Trading Details (RTD) has been amended to include additional fields PA2, PA3 and PA4 to capture the value of goods imported.

Businesses will have to meet certain conditions to avail of postponed accounting.

Revenue may exclude traders who don’t fulfil specific requirements such as compliance with tax and customs regulations from postponed accounting. You may need to satisfy Revenue of the viability of your business and capacity to pay your VAT liabilities.

If you are excluded from the scheme, you will be obliged to pay VAT at the point of entry.

If you were already registered for VAT and Customs & Excise (C&E) when the Brexit transition period ended on 31 December 2020, you won’t need to apply for postponed accounting – you would have been automatically entitled to avail of the facility.

If you are VAT registered but weren’t registered for C&E on 31 December 2020, you must register for C&E and obtain an Economic Operators Registration Identification (EORI) number. New applicants for VAT Registration can find out more at the Revenue website.

Conclusion on postponed VAT accounting

The purpose of postponed accounting is to make the import process easier for Irish businesses that trade with Great Britain. It’s a simple measure that will ensure Irish businesses that trade with Great Britain can meet their VAT obligations without significant disruption now that the Brexit transition period has ended.

The facility is designed to avoid problems with cash flow for businesses that import from Great Britain. An added benefit is if you import goods from other non-EU countries, you can also avail of the arrangement.

For more information on your customs obligations, see our article ‘Customs and VAT after Brexit: What happens for Irish businesses?‘