The Chartered Institute of Taxation (CIOT) has given a cautious welcome to a government statement in the Budget small print that could prove welcome relief for importers after Brexit.
Businesses currently benefit from ‘postponed accounting’1 for VAT when importing goods from the EU. This gives them a helpful cash flow advantage. In a statement on page 38 of the Budget Red Book the Government state that they recognise ‘the importance of such arrangements’ and ‘will take this into account when considering potential changes following EU exit’.
The suggestion that HMRC are looking at helping importers with their post Brexit operations is welcomed by the CIOT. However, the Institute cautions business and their advisers that there is no certainty that postponed accounting will be HMRC’s preferred approach when the UK leaves the EU.
Alan McLintock, Chair of CIOT’s Indirect Taxes Sub-committee, said:
“Continuing postponed accounting after Brexit would avoid a huge strain on businesses’ cash flow and ease their respective administration work, especially as it is estimated that around 180,000 business are set to have to deal with customs declarations that have not before, once we leave the EU.2
“Postponed accounting will help cut the cash flow impact on all importers, large and small, where significant amounts of cash will otherwise become tied up due to the delay between the payment of import VAT and the associated later recovery through the importer’s UK VAT return.
“We note that the Government have not promised to implement postponed accounting but only to take postponed accounting ‘into account’ following the EU exit. We look forward to receiving more information on exactly what this means in practice and whether it will be limited to trade with EU countries only or extended to imports from the rest of the world.”
Notes for editors
- Postponed accounting for import VAT allows businesses to offset import VAT via their quarterly VAT returns for imports from the EU. (NB. Imports from EU are technically called acquisitions while we remain EU members.) For imports from outside the EU a business has to either pay VAT at the point of import or via a deferment account, and then claim it back up to three months later in the VAT return. Such accounting is enabled currently through acquisition VAT for purchases of goods from the EU – which will go after Brexit as we leave the Single Market - and through the reverse charge for services.
- Introducing customs declarations after Brexit would affect up to 180,000 UK traders and could cost traders over £4 billion a year, according to the IfG analysis paper Implementing Brexit: Customs, see link here.