Why is HMRC checking PVA more often?

What is PVA?

Postponed VAT accounting (PVA) is a valuable tool to deal with VAT on importing goods because it helps your business cash flow. You do not pay VAT to HMRC when the goods arrive and claim input tax on your VAT return up to three months later, instead applying a reverse charge entry.

1. You will account for output tax in Box 1 based on the value of the goods and claim the same amount of input tax in Box 4. The net value of the imports is included in Box 7.
2. HMRC helps the process by issuing monthly statements through its Customs Declaration Service, which can be downloaded and kept as part of your business records.

For a GB-based business, all goods that arrive from outside the UK are imports; for a business located in Northern Ireland, arrivals from EU countries are “acquisitions” rather than imports, with separate procedures to account for VAT.

If you import zero-rated goods, such as books or children’s clothing, you will only make an entry in Box 7 because there is no VAT being postponed.

The input tax entry in Box 4 must be reduced to reflect any partial exemption issues if you have exempt sales. It must also be adjusted for any private or non-business use of the goods or non-deductible input tax, such as the import of a car that will be made available for private use.

Common errors

HMRC uses data matching and more sophisticated digital reporting systems to check the declarations made on returns. PVA creates a digital audit trail between customs declarations, import VAT statements and quarterly returns submitted to HMRC. This means that officers can easily spot any errors that you make:

• posting figures into the wrong period
• duplicating import VAT claims
• using incorrect VAT codes in your accounting software; or
• using estimated figures instead of HMRC statements.

A common error is to use the date of a supplier invoice rather than the import date to account for PVA, meaning that entries are sometimes made on a return too soon. Make sure that you base your VAT return entries on HMRC statements and not other documents, e.g. those issued by your import agent.

Third-party goods

Importers who are not VAT registered or who, under input tax rules would be unable to treat the import VAT as input tax because they are not the owner of the goods being imported, are not allowed to use PVA. Only the owner of the goods can use PVA and not an intermediary business acting on its behalf. HMRC’s policy has always been clear, that only the owner of goods can claim import VAT or use PVA. So, toll operators who import raw materials and finished products owned by their clients can’t use it.

Your business can use special customs procedures to suspend, reduce or claim relief on the payment of VAT and customs duties under special condition, e.g. inward processing, customs warehousing, temporary admission of goods for perhaps repair and maintenance.