Import VAT, Postponed Accounting and the C79

Import VAT is recoverable by the owner of the goods, not by whoever is named on the declaration. That distinction produces a great deal of denied input tax, and nothing announces the problem until an assurance officer opens the import file.

The Quiet Recovery Problem

Import VAT is recoverable by the business that owns the goods and imports them for the purposes of its taxable business. That sounds simple, and it is the source of a great deal of denied input tax, because in practice the person named on the import declaration is frequently not the owner.

Errors here rarely announce themselves. The business recovers the VAT, the return is accepted, and nothing happens until an assurance visit examines the import documents and denies recovery across every period still open.

The Two Routes for Paying Import VAT

Postponed VAT accounting

Postponed VAT accounting allows a VAT-registered importer to account for import VAT on its VAT return rather than paying it at the border and recovering it later. The VAT is declared as output tax and recovered as input tax in the same return, which removes the cash flow cost entirely.

It is elected for on the customs declaration. Two practical points:

• The decision is made on the declaration, frequently by a freight agent, and businesses are often unaware which basis has been used until the statements arrive.
• The figures come from a monthly postponed import VAT statement downloaded from the customs declaration service. These are only available for a limited period, so a business that does not download them monthly can lose the evidence for its own return.

Paying at the border

Where import VAT is paid at the border, whether directly or through a duty deferment account, the evidence for recovery is the C79 import VAT certificate, issued monthly.

Where It Goes Wrong

• Importer of record is not the owner. The recovery belongs to the owner, not to whoever is named on the declaration. Where a UK entity imports for an overseas principal, the correct answer is usually that neither recovers unless the overseas principal registers, or the arrangement is restructured so that ownership passes before import.
• Statements never downloaded. Postponed import VAT statements are available for a limited period only. A business that discovers a problem a year later may find the underlying statements are gone.
• Double recovery. Postponed accounting entries recovered on the return and a C79 claimed for the same consignment.
• Agent errors. The freight agent uses the wrong EORI, the wrong VAT number, or the wrong procedure code. The importer bears the consequence.
• Goods returned, rejected or destroyed, where relief or repayment should have been claimed and was not.
• Special procedures (inward processing, customs warehousing, temporary admission) operated without the required authorisation or without discharging the procedure correctly.
• Low value consignments and marketplace rules, where responsibility for accounting shifts between the seller, the marketplace and the importer depending on value and route.

Assessments and Consequences

• Denied recovery across open periods, with interest.
• A penalty on the usual behaviour analysis. A recovery claim made on a genuine misunderstanding of who owns the goods is careless at worst, and under HMRC v Tooth a deliberate finding requires knowledge of the error and an intention that HMRC rely on it.
• Best judgment assessment where records are incomplete, engaging Van Boeckel and Pegasus Birds.
• Pay or deposit before the tribunal will hear an appeal, subject to hardship: Totel.
• Authorisation risk. A poor compliance record threatens deferment, special procedure authorisations and AEO status, which is frequently the greater commercial concern.
• Duty as well as VAT. The same import records will be examined for classification, valuation and origin: see our resource on C18 post-clearance demands.

Practitioner Application

Getting it right

1. Establish who owns the goods at the point of import, and make sure the declaration reflects it. This one question prevents most of the exposure.
2. Download the monthly statements every month. Postponed import VAT statements and C79s should be filed with the VAT return working papers, not left on the portal.
3. Reconcile the statements to the return entries each period. Discrepancies found monthly are corrections; discrepancies found by HMRC are assessments.
4. Instruct the agent in writing on which basis to use, whose EORI and VAT number to quote, and which procedure codes apply.
5. Review the Incoterms. Delivery terms determine who is importing and frequently sit inconsistently with the VAT position adopted.
6. Where an overseas principal is involved, consider whether it should register, or whether title should pass before import.

If HMRC challenges recovery

• Establish ownership with contemporaneous documents: purchase invoices, contracts, Incoterms, insurance and title provisions.
• Check every period in the schedule against the statements. These assessments are built from data extracts and contain duplicates and misallocations.
• Test the time limits for each period assessed.
• Separate the duty position from the VAT position if both are in issue, since the grounds and the appeal routes differ.
• Fight the behaviour category before negotiating quantum, since it drives the penalty and how far back HMRC can go.

Frequently Asked Questions