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Xero – import & export VAT post Brexit

Overview

From 1st January 2021 (post Brexit) new rules apply for accounting for import and export VAT. This has made recording imports and exports on Xero quite a lot harder. This note explains some of the new rules and how to record import and export transactions in Xero. You can see a similar note for QuickBooks here.

Exporting goods

The VAT rule for exporting goods is quite easy: you just need to zero rate the invoice when you export goods to anywhere outside the UK. To prove that you have exported the goods you need to make sure that you have evidence of the export. If you don’t meet these conditions you need to treat as a normal UK sale.

To fill out the VAT return you only need to complete one box: Box 6 – Total value of sales and all other outputs excluding any VAT. The Xero VAT code that you should usually use to do this is “Zero Rated Income“.

There is a potential problem here in that the support to the VAT return will show the export under a sub-heading within Box 6 that says “Zero Rated”. This heading is not strictly accurate and may cause confusion if there is a VAT inspection. To get around this one could create a customs VAT code called “Outside the Scope” or “Export Sales” and use this instead of “Zero rated Income”.

You can read more about export rules in VAT Notice 703.

Importing goods

The rules for importing goods are a bit more complicated, but as was the case before Brexit, you still need to provide your UK VAT number to your foreign supplier so that they don’t include overseas VAT on their invoice, and you still can’t reclaim EU VAT on a UK VAT return.

Postponed VAT accounting

As a reminder – Import VAT applies to commercial goods brought into the UK with a value of more than £135. Basically, in these cases the importer has two choices:

  • use Postponed VAT Accounting (PVA) and include the import VAT that you need to pay on your VAT return; or
  • Pay the VAT at the border.

You must use PVA in the period to 30 June 21 if you delay your customs declaration or use a simplified customs declaration. Most businesses will want to use PVA because there is a cash flow advantage. See https://www.gov.uk/guidance/check-when-you-can-account-for-import-vat-on-your-vat-return) for more details on who can and cant use PVA.

When you complete your customs declaration you need to tick a box that says that you will use PVA. This will result in HMRC creating a “Postponed Import VAT Statement” which is available from your Government Gateway Account. You will need this when you complete your Xero VAT return.

The VAT return and postponed VAT accounting

The boxes that you need to fill in for Postponed VAT Accounting are as follows (Read here if you are interested):

  • Box 1 – VAT due on sales and other outputs
  • Box 4 – VAT reclaimed on purchases and other inputs
  • Box 7 – Total value of purchases and all other inputs excluding any VAT

To make these entries on Xero you need to go to the bottom of the VAT Return and select “Apply PVA Adjustments“. However, this only creates an entry in Box 1 and Box 4 of the VAT Return. Box 7 will be completed when the purchase invoices relating to Postponed VAT Accounting are entered into Xero. Note that these need to be entered using the “Zero Rated Expenses”. Note that as was the case for exporting goods, this heading is not strictly accurate and may cause confusion if there is a VAT inspection. To get around this one could create a customs VAT code called “PVA Purchase Invoices – 0%” and use this instead of “Zero rated Expenses”. This will also help in that it allows the PVA VAT to be reconciled against the invoices that it relates to.

Exporting services

The rule for exporting services is easy: you need to zero rate the invoice when you export services to anywhere outside the UK. Most zero rated sales invoices should mention the reverse charge: “This invoice may be subject to reverse charge and VAT may need to be accounted for by the customer.”

To fill out the VAT return you only need to complete one box: Box 6 – Total value of sales and all other outputs excluding any VAT. The Xero VAT code that you need to select to do this is usually “Zero Rated Income”.

Importing services

The rule for importing services is also easy in that you usually need to reverse charge the service that you import. The boxes on your VAT return that you need to fill in are:

  • Box 1 – VAT due on sales and other outputs
  • Box 4 – VAT reclaimed on purchases and other inputs
  • Box 6 – Total value of sales and all other outputs excluding any VAT
  • Box 7 – Total value of purchases and all other inputs excluding any VAT:

To achieve this on Xero you should select the Xero VAT code: “Reverse Charge Expense (20%)”.

As before, mention the reverse charge on your invoice: “This invoice may be subject to reverse charge and VAT may need to be accounted for by the customer.”

Overview From 1st January 2021 (post Brexit) new rules apply for accounting for import and export VAT. This has made recording imports and exports on Xero quite a lot harder. This note explains some of the new rules and how to record import and export transactions in Xero. You can see a similar note for […]

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