Postponed Import VAT Accounting

Background

PIVA was introduced in its current guise in the 2020 Autumn Statement, as part of the UK’s Brexit package, largely to appease the UK’s importers who were otherwise concerned about losing the VAT cash flow benefits of trading with the EU’s Single Market. In the context of maintaining this element of benefit on movements of goods between the UK and the EU, this was a zero cost to the UK Treasury, although the simultaneous extension of PIVA to imports from the rest of the world was a one-off hit to the UK’s cashflow.

Historically, the UK operated PIVA when it implemented VAT in 1973 and removed it in 1984 following investigations of VAT abuse on movements of gold. In 1993, when the EU Single Market was formed, a form of PIVA returned, allowing VAT on intra-EU movements of goods to be accounted for as acquisition VAT and sales VAT through Intrastat returns. It is also worth noting that many EU Member States operate a PIVA regime too.

At import, goods must be declared and payment of customs duty and import VAT needs to be made in order that the shipment can be cleared. Importers have options to pay these charges immediately, make use of a deferment account (up to six weeks credit), or, in the case of import VAT, to use PIVA.

Benefits

The benefit of PIVA is significant for VAT registered importers, who do not need to physically pay import VAT at the point of import clearance, but instead postpone the liability and account for it on their VAT return. Eligibility requirements are simple – a UK VAT registration is the only requirement. PIVA has enabled the removal of the need for guarantees or security to support a deferment account, which in turn has meant that many businesses have been able to release more working capital into the business. According to Chancellor Nigel Lawson’s 1984 Budget statement (when PIVA was last withdrawn), “an importer does not have to account for VAT on his imports until he makes his normal VAT return, on average some eleven weeks later”. According to a response to a freedom of Information request, in the twelve months to the end of June 2025, PIVA was used to postpone £84.1 billion of import VAT, indicating that the average eleven weeks postponement is worth £17.8 billion.

Goods imported using PIVA enjoy a distinct advantage over goods manufactured in the UK, as there is no facility for a UK customer to buy from a UK manufacturer without paying VAT, so the manufacturing sector may be reluctant to support the continuation of PIVA, although this will depend on the profile of those with global supply chains that source materials/components from overseas v. who source goods domestically.

Pitfalls

PIVA works well when used as intended, by legitimate importers. There are, however, weaknesses which allow an otherwise beneficial simplification to be exploited to evade the payment of VAT. This also has the consequence of presenting compliance difficulties for unwary users of PIVA and depriving the Treasury of revenue. 

In December 2024, The Times newspaper and the BBC reported VAT evasion arising from fraudsters creating bogus companies, often based at the same address and obtaining VAT registrations and EORI numbers, with the clear intention of using their valid VAT and EORI details as a veneer of credibility to import goods without payment of VAT, to then sell the goods, often via online marketplaces, and then simply disappear. As soon as fraudulent activity is detected and stopped, new bogus companies are set up and the fraudulent evasion continues. This activity severely undercuts legitimate retailers in the UK, who pay duty and import VAT on the goods they buy from overseas, and must build these costs into their own selling prices. In addition to evading UK VAT, there is also the possibility that goods imported in this way infringe safety standards.

The victims of this fraud include the UK taxpayer, as the evasion of VAT contributes to a 'tax gap', currently estimated by HMRC to be around £46.8 billion for the year 2023-2024 across all taxes, depriving the government of funding for public services, as well as the customs agents who have been hoodwinked into making declarations on behalf of the bogus companies. Sometimes years after the goods have been imported, HMRC are unable to trace the importer, so then impose joint and several liability on the agent, which in reality means full liability as the offending importer has disappeared. By contrast, if HMRC were able to take action against a bona fide importer, that importer would be able to recover any import VAT through their VAT return, on the basis that they owned the goods, however, any import VAT liability defaulting to the customs agent cannot be recovered on the agent’s VAT return, as he did not own the goods that were imported. This is leading many agents to refuse the use of PIVA on behalf of their customer, as the potential risk is too great.

Reform

Removing PIVA would be an extreme solution and have a negative impact on the VAT cashflow of UK importers. There are though a number of ways in which the integrity of the current simplification could be improved:

the use of PIVA could be made subject to separate approval by HMRC, with particular emphasis on ensuring that applicants are 'fit and proper' actors, with enhanced credibility checks for VAT and EORI registration applications for addresses where registrations are already in place – including positive identification of business owners:

• cancellation of offending VAT and EORI numbers – with flags placed in CDS against attempted use at import
• prosecution of the facilitators of such activity – those who submit multiple registration applications for bogus entities
• close collaboration with Companies House to jointly consider new applications and also to close down offending companies and their corresponding VAT and EORI numbers
• restriction of PIVA to verified UK established, VAT registered businesses, such that PIVA can only be used where agents can make declarations as direct representatives
• denial of PIVA for 'high risk' supply chains (typically finished goods from China).

If a process was in place to approve applications to use PIVA, customs agents could be confident that their use of the UK VAT checker, EORI checker, and perhaps also a PIVA checker could represent adequate levels of due diligence to avoid unwittingly becoming liable for the consequences of deliberate fraud.

Alternatives to PIVA

While it may be unlikely, the possibility of PIVA being removed cannot be ignored, particularly if it is seen as a means for government to collect revenue (£17.8 billion within eleven weeks) without raising taxes, and also where there may be pressure for action against evasion that contributes to closing the tax gap.

Some of the cash flow impact that would arise for importers (if PIVA was removed) could be mitigated by using deferment accounts, where HMRC have the ability to waive the requirement for a guarantee or security for import VAT.

Since PIVA was introduced, the benefits of customs warehousing have been largely limited to customs duty cash flow – a relatively minor benefit in a landscape of reducing customs duty rates. However, customs warehousing would suspend import VAT for as long as those goods remain in a customs warehouse. Many UK retailers already use customs warehousing to eliminate UK duty on goods for shipment to non-UK markets.

The fact remains though that whilst it would contribute to closing the tax gap, removing PIVA would negatively impact importers, with only some of the benefits of PIVA being achievable through alternatives.

Closing the tax gap

HMRC’s Transformation Roadmap, published in July 2025 includes a commitment to 'close the tax gap', currently estimated at 5.3% of all tax receipts (£46.8 billion). In the current economic climate, Chancellor Rachel Reeves is putting pressure on government departments to deliver savings and support the UK’s industrial strategy, which is undermined by the fraudsters who compete by evading their obligations to pay the same level of import charges.

A meaningful consultation on the reform of PIVA won’t close the tax gap on its own, but could go some way towards demonstrating HMRC’s commitment to at least reducing the tax gap, tackling large scale evasion and levelling the playing field for legitimate UK traders.

For further information on anything discussed in this article, please contact your usual Crowe contact.