Revenue and Customs Brief 3 (2022): postponed VAT accounting and businesses registered under the Flat Rate Scheme
Published 17 February 2022
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1. Purpose of this brief
This brief explains how businesses registered for the Flat Rate Scheme who are accounting for import VAT using postponed VAT accounting should account for these supplies on VAT Return periods starting on or after 1 June 2022.
You should read this brief if:
- you’re registered under the Flat Rate Scheme
- you have accounted for import VAT on your VAT Return on or after 1 January 2021
2. Background
Postponed VAT accounting was introduced on 1 January 2021 and allows UK VAT registered businesses to declare and recover import VAT on the same return, rather than having to pay it upfront when the goods are imported and recover it later.
Businesses registered under the Flat Rate Scheme were asked to include imports accounted for using postponed VAT accounting in the turnover that is subject to the flat rate percentage.
It was included in box 1 on the VAT Return, VAT due in the period on sales and other outputs, leading to an incorrect assumption that it would constitute a supply for Flat Rate Scheme purposes and the flat rate percentage should be applied.
3. Next steps
HMRC guidance has now been updated to reflect the new treatment for import VAT for Flat Rate Scheme traders using postponed VAT accounting. Businesses must adopt the new guidance for VAT Return periods that start on or after 1 June 2022.
The correct treatment under the legislation excludes the value of imported goods from the Flat Rate Scheme calculation.
The full amount of import VAT should be added to box 1 following the flat rate calculation.
Any amounts that may have been due to HMRC if the correct treatment had been in place for periods starting before 1 June 2022 will not be collected and businesses will not be penalised in relation to those amounts. In these circumstances businesses do not need to amend previously declared returns.
If any businesses have overpaid HMRC while they have been adopting the incorrect treatment, businesses should look to recover these amounts using the standard process to correct errors on your VAT Returns.
4. Guidance
More information on the Flat Rate Scheme can be found in VAT Notice 733: Flat Rate Scheme for small businesses.
Find more information on completing your VAT Return to account for import VAT if you are using a VAT accounting scheme.
You can also find more information about working out the VAT due on sales in VAT Notice 700/12.