What Postponed VAT Accounting Is
Import VAT is the VAT charged on goods when they enter the UK. Before the system changed, many importers paid it at the border and then reclaimed it later on their VAT return, which tied up cash while they waited. Postponed VAT accounting changes the timing. A VAT-registered importer using it does not pay import VAT at the border. Instead, the VAT is recorded on the importer's VAT return for the same period, where it can usually be reclaimed as input VAT at the same time, subject to the normal rules.
For a clothing brand, the effect is practical. Import VAT on a container of hoodies can be a large number, and being able to account for it on paper rather than pay it up front helps cash flow. It does not remove the VAT, and it does not change how much VAT is due. It changes when and how it is dealt with. This guide gives the general picture and you should check the current rules on GOV.UK guidance on working out the VAT value of imported goods and the other official pages before relying on it.
Where import VAT sits in the total cost of a shipment is covered in our UK landed cost guide.
How Postponed VAT Accounting Works Step by Step
The process starts with the customs declaration. Your broker or forwarder indicates that you are using postponed VAT accounting and includes your VAT registration number on the declaration. Customs releases the goods without collecting import VAT at the border. Duty, if it is due, is still handled in the usual way.
After the month ends, HMRC makes a statement available online that lists the import VAT you postponed. You use it to complete your VAT return, entering the import VAT as output tax in one box and reclaiming it as input tax in another. If you can reclaim it in full, the two entries cancel out and no cash leaves your business for that VAT. Our guide to the EORI number for importing clothing covers the other identifier that appears on the same declaration.
Postponed VAT accounting in sequence
- 1RegisterHold a VAT number and an EORI number
- 2DeclareYour broker states you will use postponed accounting
- 3ReleaseGoods clear without import VAT paid at the border
- 4StatementA monthly statement lists the postponed VAT
- 5VAT returnAccount for the VAT and reclaim it where allowed
A simplified outline. Follow the current official guidance for the exact entries and boxes.
A Worked Example of the VAT Value and the Cash Effect
The example below uses placeholder numbers to show how the effect works. They are not duty rates and not prices, and they should not be copied. The VAT value of imported goods is built from the customs value, any duty and certain costs of getting the goods to their first destination in the UK, which the GOV.UK guidance on working out the VAT value of imported goods guidance explains. Import VAT is then calculated on that total at the applicable rate. For the example, a rate of 20 per cent is used, which is the standard rate at the time of writing, so check the current rate on GOV.UK VAT rates.
Illustrative VAT value build-up (placeholder figures)
| Component | Example amount | Note |
|---|---|---|
| Goods value on the invoice | 10,000 | Customs value in this simplified example |
| Freight and insurance to the UK border | 1,000 | Costs that may form part of the VAT value |
| Duty (placeholder only) | 500 | Not a real rate. Use your own figure |
| VAT value | 11,500 | Sum of the three lines |
| Import VAT at 20 per cent | 2,300 | Calculated on the VAT value |
Illustrative arithmetic in pounds sterling: 10,000 + 1,000 + 500 = 11,500, and 20 per cent of 11,500 is 2,300. All figures are placeholders to show the method and are not advice.
What builds the VAT value in the example
Example VAT value, 11,500
- Goods value87%
- Freight and insurance8.7%
- Duty (placeholder)4.3%
Shares of the 11,500 example VAT value: 10,000 goods, 1,000 freight and insurance and 500 placeholder duty, rounded to one decimal place. An illustration of the method only.
Cash Flow With and Without Postponed VAT Accounting
The difference between the two routes is timing. Without it, the importer pays the import VAT before the goods are released and recovers it on the next VAT return, which can be weeks later. With postponed VAT accounting, no cash goes out for the VAT, because it is accounted for and reclaimed on the same return. In the example above, the 2,300 would be paid up front under the old approach and only recovered later, whereas under postponed accounting the entries net to zero in the same return.
Cash timing compared (using the example figures)
| Stage | Pay at the border | Postponed VAT accounting |
|---|---|---|
| Goods release | 2,300 paid before release | Nothing paid for VAT |
| VAT return | Reclaim 2,300 as input tax | Account for 2,300 and reclaim 2,300 on the same return |
| Cash effect | Out first, back later | Nil, if fully reclaimable |
| Duty | Paid or deferred as arranged | Paid or deferred as arranged |
Illustrative timing only. Recovery depends on your VAT position and the normal rules, so check with an adviser.
Using postponed VAT accounting
Strengths
- Avoids paying import VAT before the goods are released
- Improves cash flow on larger shipments
- Entries net out on the same return where VAT is fully recoverable
Points to watch
- You must be VAT registered and use the correct declaration method
- Your VAT return needs the postponed VAT entries done correctly
- It does not change customs duty, which is still payable
A general summary. Your own VAT position and circumstances decide the real effect.
What Postponed VAT Accounting Does Not Change
Postponed VAT accounting does not remove the VAT, reduce customs duty or change the commodity code. It does not make a non-recoverable VAT cost recoverable, so a business that cannot reclaim input VAT in full still bears the cost. It also does not help with other charges, such as freight and broker fees, which are paid in the usual way.
Duty remains a separate matter. Where a trade scheme gives a reduced or zero rate for qualifying goods, you must still meet the rules to claim it, which is explained in our guide to UK DCTS rules of origin for Bangladesh garments. Postponed VAT accounting is about when VAT is dealt with, not about how much duty is due. Keep the two separate in your planning, because a brand can use one and still pay the other in full, and each follows its own rules and timing on the declaration.
What You Need in Place Before You Use It
The practical requirements are modest. You need to be VAT registered and have your VAT number ready for the declaration. You need an EORI number, because the importer must be identified. You need a broker or forwarder who will file the declaration with postponed accounting indicated, and you need to know how to access your monthly statement and use it on your VAT return.
Postponed VAT accounting checklist
- VAT registration number is active and correct
- EORI number is registered for the importing entity
- Your broker knows you want to use postponed VAT accounting
- The VAT number appears on the declaration for each shipment
- You can access the monthly postponed import VAT statement
- Your accountant knows how to enter the amounts on the VAT return
- You have kept the documents supporting each import
- Duty and other charges are planned separately
A general list. Your accountant or broker can confirm the exact steps.
Which Costs Are Affected by Postponed Accounting
It helps to separate the costs of an import into those that postponed accounting touches and those it does not. Only import VAT is affected. The rest still has to be paid on the usual terms, so a plan for cash flow must list them separately.
Import cost lines and whether postponed accounting applies
| Cost line | Affected by postponed VAT accounting? | Note |
|---|---|---|
| Import VAT | Yes | Accounted for and reclaimed on the VAT return |
| Customs duty | No | Paid or deferred as arranged |
| Freight and insurance | No | Paid to the carrier or forwarder |
| Broker fees | No | Paid to the broker |
| Goods payment to the factory | No | Paid under the agreed terms |
A general guide. Your broker and accountant can confirm how each line is handled.
Common Mistakes With Postponed VAT Accounting
The first mistake is not telling the broker. If the declaration is made without postponed accounting being used, the VAT may be collected at the border, and you are back to paying up front. A second is forgetting to use the monthly statement, which leaves the return incomplete. A third is entering only one side of the postponed VAT, which leaves the books out of balance.
Brands also sometimes budget as though the VAT has disappeared, when the amount still has to be accounted for and is only recoverable if your VAT position allows it. Another trap is confusing import VAT with VAT charged on your sales, which follows its own rules. Our guide to how to price clothing for wholesale and retail covers sales-side pricing separately.
Planning Your Cash Flow Around an Import
Even with postponed VAT accounting, an import brings other costs at specific times. The supplier needs payment according to the agreed terms, freight is invoiced, duty may be due on arrival and your broker will bill for clearance. Putting these into one timeline helps you see when cash is needed, and our guide to clothing manufacturer payment terms explains how supplier payments are usually staged.
A simple import cash timeline
- At orderDeposit to the factory under the agreed terms
- Before shippingBalance to the factory and freight booking
- At clearanceDuty, if due, and broker charges
- At the VAT returnPostponed VAT accounted for and reclaimed
- On deliveryWarehouse and delivery charges
A simplified timeline. Real terms vary by supplier, carrier and broker.
How Ruhrose Supports UK Buyers With Import Planning
Ruhrose develops hoodies, fleece, jersey, denim and woven casualwear with production in Bangladesh and UK buyer support. We explain the shipping terms behind your quote and prepare factory paperwork that matches what your broker needs, so your declaration can be made correctly. We are not tax or customs advisers, so confirm postponed VAT accounting and your VAT position with your accountant or the official guidance. To talk through your first order, visit Ruhrose and tell us your plan.