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Postponed Accounting for Irish VAT on Imports

Indirect Tax Matters November 2020

Irish VAT legislation was updated in 2019 to provide for the introduction of postponed import VAT accounting for those who are registered for VAT in Ireland. This new legislation is however still pending a Ministerial Commencement Order which we expect will issue before the end of 2020. The legislation provides that an ‘accountable person’ who imports goods into Ireland will be in a position to self-account for the VAT due in their VAT return rather than paying import VAT upfront at point of entry into Ireland.

Irish Import VAT

Typically Irish VAT will be payable at the time of importation of goods into Ireland from a non-EU country before the goods can be released into free circulation. However, a trader can operate a deferment account which is a facility that enables an importer to defer payment of import charges. These deferred charges include Customs Duty, import VAT, excise Duty and VRT. This can allow a trader to defer payment of VAT at importation until the 15th day of month following the month in which the goods are imported, however bank guarantees as well as other customs procedures must be in place.

VAT paid on imports is generally recoverable through the taxpayer’s Irish VAT return (to the extent that there is an entitlement to VAT recovery), however, funding the import VAT generally results in a cash-flow cost for the VAT registered business.

From 1 January 2021, due to Brexit, Great Britain will be considered a Non-EU country and so import VAT will apply to goods entering Ireland from GB. Given the level of trade with Great Britain there would be a significant increase in the level of VAT cash-flow funding required by Irish businesses from 1 January 2021.

What is postponed VAT accounting?

The introduction of postponed VAT accounting will ensure that imports of goods from outside the EU, including goods from Great Britain, will effectively be treated in the same way as goods currently acquired from the EU countries. As a result there is no VAT payment due at the time the goods enter Ireland.

Those that frequently file Irish VAT returns may have noticed a new field in the VAT return to allow for ‘Postponed Accounting’. The new field ‘Postponed Accounting’ (PA1) will capture the import VAT that is being recorded in the VAT return. The new field is not currently “live” as the legislation has not yet been enacted and despite recent updates on the Irish Revenue website regarding how to account for Irish VAT, no guidance has yet issued on how to complete the additional field on the VAT return.

Can postponed accounting be used for all imports and are there any restrictions?

Postponed accounting will initially be available for VAT on all imports for ‘accountable persons’ registered for VAT in Ireland, but the legislation provides for the introduction, at a later date, of certain criteria and conditions which must be met in order to continue to avail of postponed accounting on imports. The postponed accounting process will only apply to VAT, there are a number of customs reliefs available that can result in a taxpayer avoiding immediate customs charges. However, it is important to note that these reliefs typically take a number of months to obtain and are likely to take longer in the current climate.

The legislation provides for the issuing/updating of VAT Regulations (secondary legislation) which will set out the conditions or restrictions applicable – this has not yet been released. The legislation does provide for Revenue requesting ‘documentation’ which could include details of financial transactions with third parties and details of bank accounts held.

If the accountable person does not satisfy the conditions or fails to comply with the regulations the import VAT will be deemed to have been due and payable at the time of import but not paid, this could lead to a VAT underpayment and associated interest and penalties. Therefore timely reporting of postponed VAT accounting will be critical for all businesses, and not just those operating with limited or no VAT recovery entitlement. Additionally, Revenue can issue a ‘Notice of exclusion’ which would prevent an accountable person from using the postponed accounting process. In the event such a notice does issue it can be appealed within 30 days of issue.

Next Steps

While postponed accounting is undoubtedly being introduced to relieve the cash flow impact on businesses that acquire goods from the UK following Brexit, it will also benefit businesses who import goods from other non-EU countries as the scheme will be available to all Irish VAT registered traders and not just for importers of goods from the UK.

Businesses should ensure that their systems will be able to capture such imports and that the VAT will be correctly declared in the appropriate VAT return period as and from the date specified by the Minister when the commencement order issues.

If you have any queries regarding the postponed VAT accounting process please reach out to your usual VAT contact or any of the below.

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