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CIOT Hopeful UK Will Cushion VAT Blow For Importers

Wednesday, December 6, 2017

The Chartered Institute of Taxation (CIOT) says it is encouraged by small print that was included in the recent UK Budget, which CIOT says suggests the Government is looking to cushion UK importers from a potential tax hit after the UK leaves the European Union.

CIOT pointed out that businesses currently benefit from "postponed accounting" for VAT when importing goods from the EU. Under current rules, tax-registered persons importing goods from outside the EU have to pay VAT upon the goods' entry into the European Union and later recover that VAT via their tax return. These rules do not apply for imports of goods from within the EU (so-called acquisitions) upon which acquisition VAT applies. Instead this VAT liability is reported on subsequent tax returns at which time the business can seek to offset that tax liability with any available input tax credits – that is, postpone accounting for VAT and benefit from mitigating any short-term drag on the company's cash flow.

CIOT noted that such "postponed accounting" is enabled through acquisition VAT (on imports of EU goods), which will go after Brexit, and also through the EU reverse charge for services, CIOT pointed out.

The CIOT has pointed out that in a statement on page 38 of the Budget Red Book the Government has stated that it recognizes "the importance of such arrangements" and "will take this into account when considering potential changes following EU exit."

Commenting, CIOT said: "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."

"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."