Postponed VAT Accounting – what it is and how you make it work

04 February 2021 - Ryan Pearcy

As of 1 January 2021 our trading relationship with the EU changed, and with it the operation of our VAT system when dealing with EU countries. Ryan Pearcy, Director, and Joy Shaw, Manager, explain what has changed, and how the system now works.

Importing of goods from the EU – The rules for non-EU countries now apply to EU countries. This means VAT is due on import (at the port) on all goods above £135 unless the new Postponed VAT Accounting treatment is selected (see below). VAT on goods below £135 will be collected on the date of sale. Duties will also apply, and these can also be deferred but businesses will need to open a “duty deferment account” with HMRC, which requires a bank guarantee. Online Marketplaces that handle the sale of imported goods will be responsible for managing the VAT.

Exporting goods to the EU – Goods will continue to be zero-rated for UK VAT. Import VAT and duties will now be due when the goods arrive in the EU, but businesses may be able to use the Common Transit Convention to defer these until the goods arrive at their final destination. A guarantee is normally needed for this. EC sales lists no longer need completing, (except for sales from Northern Ireland), although documentation does need to be maintained for any exported goods.  Intrastat returns still need to be completed if the reporting thresholds are breached.

Supplying services to the EU – These continue to follow the “place of supply” rules with a note that the supply of digital services is applied to where the customer resides and will be subject to VAT regulations for that country. The £8,818 annual threshold no longer applies. Businesses will need to either register for VAT in that country or sign up to utilise the VAT MOSS non-union scheme in one of the EU countries.  Use of the non-Union Moss will enable UK businesses making digital sales to EU countries to make one MOSS return per calendar quarter, via the same Government Gateway account as for UK VAT returns. Once your business has registered, your Agent can be authorised to make their returns; the existing UK VAT MOSS scheme will not be applicable. In addition, insurance and financial services switches from ‘exempt’ to ‘outside of scope’.

Overseas sellers of goods to the UK – These businesses will now be required to register for VAT with HMRC and submit relevant returns.

Postponed VAT Accounting (PVA)

Firstly, PVA is optional and applies to goods from both the EU and rest of the world. As of 1 January 2021, VAT is due at the port of entry for all imports. To prevent the cashflow difference of paying the VAT on import (at the port) but only being able to reclaim the VAT on the next VAT return, businesses can opt to apply PVA. This information is collated centrally per business into a “monthly postponed import VAT statement (MPIVS)” found here and needs to be entered into a single VAT return, which will apply to box1 and box4 at the same time, effectively netting off in box5. This approach should make processing the VAT returns more straight forward whilst preventing any negative cashflow consequences of leaving the EU.

Please note that PVA can be applied on a transaction by transaction basis but will be dependent on what has been selected on import at the port.

If your business uses an import agent you should ask them to apply PVA on their behalf, otherwise it will be included on the invoices received from your agent and PVA will not be able to be applied retrospectively. Instead, the old method of paying the VAT and then reclaiming separately will have to be followed as would have been done for all rest of the world imports.

Cloud Accounting
If your business uses cloud accounting software, providers have made now changes to their systems to allow for recording PVA, and the notes below explain how this works on Xero, Sage50 and QuickBooksOnline (QBO).


Xero have released a simple adjustment button that can be found at the bottom of the VAT return called “Apply PVA adjustments”. This works in the same way as an MTD adjustment in the current VAT setup, when you aren’t making an accounting entry, but notes it as PVA related in the audit trail. Up to 13 monthly statements can be added at once and Box 1 and Box 4 increase based on the figures entered. Please note that there is nowhere to attach the MPIVS in the adjustment.

The individual purchase therefore needs to be entered with a zero-rated expense VAT code. To improve the audit trail we strongly advise that a new VAT code called “PVA – net costs” (or similar) is created so that it is easy to identify the total for PVA separately in the return and check this against what is on the monthly statements on the government website. Xero have not released new VAT codes centrally for tracking this, so these will need to be created manually.

There is an alternative approach using bills, but this is more cumbersome and as the VAT return should match the government monthly statement we advise against this approach.

Please note that Xero’s guidance on this on Xero central is not very good and their system is pretty rudimentary (for Xero).


Sage has released a set of new VAT codes in its update v27.1 to be used post 1 January, that can be found here. The PVA code is T18 and accounts for the transaction correctly for the VAT return, using a mixture of the invoice and an automated credit note that is created and applied to the invoice upon posting. This works similarly for credit notes being entered.

Sage’s advice is to reclaim the VAT on the purchase invoice when entered, using the T18 code. Although this will ensure the VAT is accounted for as soon as possible, it may lead to errors and discrepancies. This may occur if the VAT is an “estimate” on the invoice and differs to the VAT shown on the MPIVS. There may also be timing differences between the PVA on the Sage VAT return and the totals on the MPIVS which will require a manual reconciliation.

Please note that if you use a connected tool (such as a data capture tool) then the automated credit note process associated with T18 will not work and adjustments will need to be made manually.

To take the same approach as is taken in Xero, i.e. applying per the MPIVS, you enter the total MPIVS figure in Sage via a journal, debiting code 2201 and crediting 2200, noting both to be included in the VAT return. Similarly to Xero, we advise creating a specific VAT code, similar in setup to T16 to account for the purchase transactions. There is nowhere to attach the MPIVS on the adjustment.

QuickBooks Online (QBO)

In a similar approach to Sage, QBO has released new VAT codes for PVA but these are initially hidden. These can be found by going to Taxes->Edit VAT-> Edit rates -> Cog -> Include inactive. Once selected these will adjust the VAT return accordingly. QBO have acknowledged that there is an issue with the detailed report where PVA transactions are not shown in box 4, although the VAT return figure is correct. Details here.

In a comparable way as Sage50 this process may cause timing issues and require adjustments if VAT doesn’t match the MPIVS.


Overall, VAT conditions when working with the EU have now aligned with the rest of the world. This has created some additional burden on imports, although PVA assists with this, but the main added difficulties are reporting VAT on exports, as additional returns may need to be completed per EU country.

For PVA processing the process is relatively simple. Xero has taken a different approach to Sage50 and QBO and the Xero solution is simpler, but it requires more manual work by your business, and this is likely due to a lack of inventory-based clients on that system. At the moment our opinion is that none of these software systems can fully solve the problem, but our guess is that they assume it will either not be adopted en masse or will disappear promptly as an option. If this process persists it is likely they will make further adjustments to how PVA is managed.

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