For businesses that buy and sell internationally, VAT can add an extra layer of complication. It can have a serious impact on cash flow, requiring the outlay of large sums on imported goods. From a freight perspective, it can also lead to hold ups in the supply chain caused administrative delays and other complicating factors. However, to address this issue some countries have introduced a mechanism called Postponed VAT Accounting (PVA). This allows sellers to account for and recover their VAT on their VAT return, rather than being required to pay it up front as goods are imported into the country.
It means that businesses using postponed VAT on imports can reduce their cash flow burden and speed up the freight process, helping to keep the business moving. Under the PVA customs scheme, eligible businesses can now account for VAT as a reverse charge on their VAT return, avoiding the upfront VAT payments. To do this, businesses just need to make a declaration to the customs authorities using the appropriate form stating their intention to account for the VAT through the PVA mechanism. When the VAT return is due, businesses will need to include the import VAT and settle up when they make their regular payments.
For business trying to manage cash flow or those looking for global freight solutions to enhance the smooth import of goods and to keep the wheels of business moving, postponed import VAT accounting can have a number of key advantages. These include:
Streamlined Accounting
By handling VAT through standard VAT returns rather than at customs points, businesses can simplify their accounting processes and offset import VAT with input VAT. This creates a more manageable financial workflow and gives businesses a greater degree of control.
Improved Cash Flow
For freight forwarders and their customers, PVA keeps funds available for other operational costs by removing the need for immediate VAT payments. When these are levied at customs points, import costs can put a real dent in cash flow, especially on large shipments. By managing import VAT on returns, businesses regain control of their cash flow and can manage VAT in a more controlled way
Faster Goods Release
For freight forwarders and shipping companies, hold ups and delays at customs can be very frustrating and throw even well-planned operations out of sync. By eliminating the need to pay VAT upon entry this reduces administrative delays, in turn enabling quicker clearance and release of goods from customs. This is especially beneficial in the time-sensitive logistics business.
Post-Brexit Trade Efficiency
As UK businesses adjust to new customs processes associated with Brexit, PVA provides a valuable tool to ease the transition. Most importantly, it makes UK imports more cost-effective and reduces the financial strain on importers and forwarders. PVAs are now becoming more common for ROTW (rest of the world) shipments as well, which is an additional positive result of its intended use for post-Brexit efficiency.
Optimise your cash flow with Postponed VAT Accounting – speak to the team at Jordon Freight today to learn more.
