Completing a VAT return

Completing a VAT return: guidance for businesses that trade worldwide

Are you trading with businesses outside the UK?

Robert Marchant, Partner, VAT and Customs Duty
06/01/2022
Completing a VAT return
Have you considered the VAT implications? Below we guide you as to which boxes on the VAT return should be completed for each type of transaction.

Note: selling services overseas

Most services supplied to customers who belong outside the UK are to be treated as outside the scope of UK VAT. In this situation, the sale is “VAT free” and the only entry required on the UK VAT return is the value of the sale in Box 6 [box 6]. A business customer, and particularly those in the EU, may need to account for VAT in their local country via applying the reverse charge. However, a UK supplier no longer has to include language such as “customer may need to apply the reverse charge” on their sales invoice. It’s also the case that since 1 January 2021, an EC Sales List is not required in respect of services supplied to VAT registered customers belonging in other EU countries (but there is an exception for suppliers based in Northern Ireland).

Buying goods from another EU country

When businesses based in Great Britain buy goods from that will be shipped to Great Britain, the purchase is now subject to the VAT rules for imports. Provided the relevant conditions are met, no VAT is charged on the export from the EU by the supplier. Businesses importing goods into Great Britain from the EU will need to make customs declarations and pay import VAT to release the goods into Great Britain or apply Postponed Import VAT accounting. Customs Duty may also be payable. There are different rules for Northern Ireland which is to be treated as remaining in the EU when trading with EU businesses. Therefore, when businesses bring goods into Northern Ireland, the buyer accounts for acquisition tax in Box 2 of the return. There will also be entries in Box 4 (the amount depends on how much you are entitled to claim), Box 7 and Box 9.

Buying goods from a non-EU country

There is no change to this process as a result of Brexit, other than the rules now also apply to trade with EU countries as well. Businesses are required to pay import VAT at the point when the goods enter the UK and the import VAT is, in principle recoverable, provided the importer is the owner of the goods and holds the right evidence for input VAT recovery. The importer may also choose to pay the UK import VAT due by applying Postponed Import VAT Accounting. Note that Customs Duties may also be due on the import of the goods.

Postponed Import VAT accounting (PIVA)

The importer of record can choose to apply PIVA to account for import VAT. This means that the importer does not have to pay import VAT at the time the goods are released into the UK, but instead the import VAT is accounted for on the VAT return as both payable VAT (sales) and receivable VAT (purchases, with the amount of recovery dependent on the business’ recovery position).

This results in an improved cashflow position.

Entries will be made as follows:

Box 1 (Output tax) Amount of Postponed Import VAT based on PIVA statement published by HMRC. This is the import VAT that business has postponed.
Box 4 (Input tax) The same amount of Postponed Import VAT as in Box 1 (if all the import VAT is recoverable)
Box 7 (Purchases) The net import VAT figure should be entered – this is the purchase invoice value including all charges payable on importation into the UK.
 
Where an importer does not use PIVA it instead pays import VAT at the time the goods are imported and then receives a C79 certificate to support recovery of the VAT).  Entries should be made in Box 4 (the amount depends on how much you are entitled to claim) for input VAT and Box 7 for purchases.

Selling goods to a VAT registered business in the EU

Post Brexit, sales of goods from the UK (excluding Northern Ireland) to an EU VAT registered business are exports (previously known as dispatches) i.e. zero rated, subject to evidence of export documents kept by the seller. The sales amount should be recorded in Box 6. EC Sales Lists and Intrastat declarations are no longer required. Sales from Norther Ireland to EU countries will continue to follow the rules for intra-EU trade (i.e. dispatches – sales of goods between EU countries). The sale is zero rated and should be recorded in Box 6 and Box 8. EC Sales Lists will be required and the Intrastat declarations will also be required, subject to the amount of trade.

Selling goods for export destinations outside the EU

The sale will normally be zero rated provided certain conditions are met and is recorded in Box 6.

Buying services from abroad

The reverse charge applies to the majority of services brought from both EU and non-EU suppliers. Some exceptions to this include land related services, admission to events and long-term hire of goods. If you receive an overseas invoice for a service with no VAT then in the most cases you will have to account for VAT on the reverse charge basis. The basic principle of the reverse charge is that the customer deals with the VAT rather than the supplier. The customer treats the services as both his income and expenditure.
 
There are no changes to the requirement to apply the reverse charge as a result of Brexit.
 
Entries will be made on the VAT return as follows:

 

Box 1 (Output tax) Value of the supplies multiplied by the rate of VAT that applies to that service in the UK and postponed Import VAT amounts
Box 4 (Input tax) The same figure as Box 1 but adjusted for any partial exemption requirement and postponed Import VAT amounts
Box 6 (Sales) The net figure should be entered – invoice value
Box 7 (Purchases) The net figure should be entered – invoice value

VAT return guide

 Box Description UK Trade Non-UK purchase goods-Import VAT paid upfront Non-UK purchase goods-Import VAT postponed Non-UK sales goods
 1  Output tax  Yes No Yes [note 8] No
 2  Acquisition tax (goods) No No No No
 3  Sum of Box 1 and 2 Formula Formula Formula Formula
 4  Input tax [note 10] Yes Yes [note 7] Yes [note 8] No
 5  Net due from/to HMRC Formula Formula Formula Formula
 6  Sales net of VAT Yes [note 1] No No Yes
 7  Purchases net of VAT Yes [note 2] Yes Yes No
 8  EU sales (goods) [note 9] No  No No No
 9  EU purchases (goods) [note 9] No No No No
   EU Sales list No No No No
   Intrastat No No No No

 

Box Description Non-UK purchase services (note 5 & 6) Non-UK sales services (note 5 & 6) EU to NI Purchase goods NI to EU sales goods
1 Output tax Yes under reverse charge No No No
2 Acquisition tax (goods) No No Yes under acquisitions procedure No
3 Sum of Box 1 and 2 Formula Formula Formula Formula
4 Input tax [note 10] Yes under reverse charge No Yes under acquisitions procedure No
5 Net due from/to HMRC Formula Formula Formula Formula
6 Sales net of VAT Yes Yes No Yes
7 Purchases net of VAT Yes No Yes No
8 EU sales (goods) [note 9] No No No No
9 EU purchases (goods) [note 9] No No Yes No
EU Sales list No No No Yes
Intrastat No No Yes [note 3] Yes [note 4]

 

Note 1: Include: exempt supplies and zero rated supplies. Exclude: Insurance claims, loans etc.

Note 2: Exclude wages and salaries, o/s scope VAT items e.g. rates, vehicle licences

Note 3: If annual arrival greater than threshold

Note 4: If annual despatches greater than threshold

Note 5: Except land related and admissions to events. For supplies of services the customer must be in business

Note 6: Except land related and admissions to events

Note 7: Based on C 79 certificate to import VAT paid upfront

Note 8: Based on PIVA statement for postponed import VAT accounting 

Note 9: EU sales and purchases relate to trade between Northern Ireland and EU Member States 

Note 10: Subject to the normal rules for deducting input tax 

Insights

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Unsure if you have paid import VAT and if so how it is to be reclaimed?
Reduction of compliance requirements for UK businesses from 1 January 2022
Exploring the principles around creating an international or EU taxable presence and common problems on which we frequently advise.
Unsure if you have paid import VAT and if so how it is to be reclaimed?
Reduction of compliance requirements for UK businesses from 1 January 2022

Contact us

Robert Warne
Rob Warne
Partner, Head of VAT and Customs Duty services
London
Robert Marchant
Robert Marchant
Partner, VAT and Customs Duty services
London
Rob Janering
Rob Janering
Partner, VAT and Customs Duty services
London