If your business receives imported goods from outside of the EU, it can be complicated to figure out how and where you can record import VAT on your invoicing software and accounting reports. In this article, I will explain how this works for both UK and Irish businesses, and if you are able to reclaim some of the VAT.
How does import VAT work?
Anything imported into the EU from a non-EU country will go through customs checks to ensure they are not restricted goods, and that you pay the correct amount of tax and duty on the goods.
In the UK, import VAT is charged at the normal rate (currently 20%) for any gifts over £39, any other goods over £15, and all tobacco, alcohol, or fragrances of any worth.
In Ireland, the normal VAT rate is currently 23%. You will pay this rate on any imported goods over €22, any gifts worth over €45, and all tobacco, alcohol, or fragrance products of any value.
In both countries, you will also have to pay a customs duty if the imported goods are worth over £135, or €150 respectively.
Here are some examples if the customs duty for the type of product you are importing is 10%.
- Customs Value (goods and shipping) = £5000
- Customs Duty (10%) = £500
- Total Import Value = £5500
- Import VAT (20%) = £1100 (5500 x 0.2)
- Customs Value (goods and shipping) = €5000
- Customs Duty (10%) = €500
- Total Import Value = €5500
- Import VAT (23%) = €1265 (5500 x 0.23)
Is import VAT charged on EU imports?
Goods bought from other countries within the EU are called “acquisitions” or “arrivals”, as “import” refers specifically to goods purchased from outside of the EU. There are no customs duties for goods purchased or transported within EU countries.
For EU acquisitions or arrivals, you will still need to pay value-added tax, but within the EU, this is not called import VAT, just VAT.
The normal VAT rate of either the shipper’s country or buyers country applies based on the threshold of sales for intra-EU business to consumer supply of goods. The threshold is set by the destination country and can be checked on the government’s website. It is usually charged at the buyer countries rate.
Certain items such as foodstuffs, medical supplies, antiques, and water supplies, can be transported within the EU at a reduced VAT rate if they meet the requirements which can be found on the buyer countries government website.
Does my business need to be VAT registered to pay import VAT?
The answer can be yes or no depending on your circumstances.
You absolutely need to register your business for VAT if you exceed the annual VAT threshold (£85,000 in the UK, and €75,000 in Ireland). However, you can also register voluntarily if you are below the threshold and wish to do so.
You will pay import VAT regardless of if your company is VAT registered or not. There are benefits of being VAT registered if your business receives several imports from abroad.
If you register your business for VAT, you must start charging your customers VAT on all eligible products and services. If you are not VAT registered, then you do not have to charge VAT to your customers.
This can be either beneficial or not depending on your type of business. If you are a carpenter, your customers will likely not be happy with you registering and then charging them VAT. If you are a large business selling products to other businesses, it may not make a difference as both companies will likely be charging VAT and reclaiming VAT.
In regards to import VAT, if your company is registered, you can likely reclaim some of the import VAT from HMRC in the UK or Revenue Commissioners in Ireland. If you are not registered, you will not have the option.
Depending on your type of business and the products you sell, it may be beneficial to voluntarily register for VAT if you are below the threshold and import a high volume of products from outside of the EU.
How do I record import VAT?
If you have imported goods into the EU, you would have filled out a customs declaration form (either electronically or on paper) stating the description of the items, the total value, and the type of import (gift, personal belongings, or other items).
When the shipment clears customs, if import VAT or a customs duty is due, you will pay the amount and receive documents confirming the amounts have been paid.
In the UK, you must keep the Import VAT certificate (form C79) for your records, and in Ireland, you must keep the customs declaration, AEP statement, or customs clearance slip. In both countries, you should retain import VAT evidence for 4 years.
Import VAT can be claimed on your VAT report (if registered) if the goods purchased are used for your business. If your company is VAT registered it is a good idea to have your VAT registration number on your customs declaration.
If you are not VAT registered, you can claim the import VAT as an expense, but it cannot be reclaimed.
Can I reclaim import VAT?
If you are VAT registered, you are able to reclaim certain VAT through HMRC (UK) or Revenue Commissioners (Ireland). If your business is not VAT registered, then there is no way to reclaim the import VAT.
In the UK, you can reclaim import VAT as “input tax” on any products imported for your business. This must be done by submitting your VAT return to HMRC. You must have your C79 form (Import VAT certificate) as evidence of payment which can be found on the UK government website.
If you are registered with HMRC, you need to submit a VAT return every accounting period (usually every 3 months) whether you have anything to report or not. You can use your VAT report from your invoicing software to keep track of the amount of VAT you owe, and the amount that can be reclaimed.
In Ireland, a VAT registered business is subject to a similar process as the UK. You can reclaim import VAT as an “input credit” on products imported for business purposes. You can claim this credit in your VAT return for every accounting period (generally every 2 months, but depends on your registration).
In Ireland, you must file your VAT return by the 19th day following the end of the previous accounting period. You do this by filling out a VAT3 form which records the payable or reclaimable VAT amounts during that period.
The T1 part of the VAT3 form is the VAT from sales. The T2 section is the VAT on purchases (including import VAT). The T3 section outlines the VAT payable, which is the difference of the T1 and the T2 (if the T1 amount is greater than the T2 amount). The T4 section outlines the VAT repayable, which is the difference of the T2 and the T1 (if the T2 amount is greater than the T1 amount).
Put simply, if your sales VAT exceeds your purchase VAT, then you will have VAT owing to Revenue. If your purchase VAT exceeds your sales VAT, then you will have VAT paid out to you. You can reclaim or pay your VAT amount through ROS (Revenue Online Services Ireland).
How does Brexit affect my imports?
Now that the UK has left the European Union, there is lots of speculation on how this will affect small businesses and trade.
The UK is in a transition period until Januray 1, 2021. During the year 2020, no changes will be made to your imports in this period. Next year, when the new rules take effect, it may change the import VAT process as the UK now has to make trade deals with several countries as it exits the union.
Unless a certain trade agreement is made with the EU, it is possible that imports from EU countries will then be subject to import VAT and customs duties. This is quite unlikely as some sort of trade agreement with the EU will hopefully be made before next year.
For now, everything stays the same. I would encourage you to keep up with the news and what trade deals or unions are made between the UK and EU that may affect your business.
Feel free to read more on our blog about Brexit: the next steps for UK small businesses.
Invoicing software and import VAT
Invoicing software like Debitoor makes it easy to customise and send invoices and quotes, record expenses, keep detailed product and supplier lists, and automatically create important accounting documents.
Import VAT can easily be recorded through invoicing software as an expense. You simply fill in the amount and description, upload a copy of the customs declaration or import VAT certificate, fill in the amount, and save it as an expense for ‘Import VAT’. This will automatically add the information to your profit & loss statement and VAT report.
You can also mark customs and import duties as an expense with invoicing software. It is not possible to reclaim these expenses through the government.
With Debitoor, you can record VAT as a supplier or purchaser so you can see both incoming and outgoing VAT. The VAT report is updated automatically so you can view the amount of VAT you pay or reclaim in real time.
If your company is VAT registered, you can easily switch VAT on with invoicing software to charge VAT on your products. You can also add your VAT registration number to documents.
Ready to record your expenses and import VAT? Feel free to give Debitoor a try with a 7-day free trial.