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Postponed VAT accounting and businesses registered under Flat Rate Scheme

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Published: 23 Feb 2022 Update History

In its latest Brief, HMRC explains the correct treatment, which must be used for periods starting from 1 June 2022. Previous returns need not be resubmitted.

HMRC has published Revenue and Customs Brief 3 (2022) for businesses registered for the Flat Rate Scheme that are accounting for import VAT using postponed VAT accounting. It explains how they should account for these supplies on VAT return periods starting on or after 1 June 2022.

Postponed VAT accounting allows UK VAT registered businesses to declare and recover import VAT on the same return. This avoids having to pay it upfront when the goods are imported, only to recover it later. 

Businesses registered under the Flat Rate Scheme have previously been advised by HMRC to include imports accounted for using postponed VAT accounting in the turnover subject to the flat rate percentage. It was included in box one on the VAT Return – VAT due in the period on sales and other outputs – leading to an incorrect assumption that it would constitute a supply for Flat Rate Scheme purposes, and the flat rate percentage should be applied.

The correct treatment under the legislation excludes the value of imported goods from the Flat Rate Scheme calculation. The full amount of import VAT should be added to box one following the flat rate calculation.

Any amounts that may have been due to HMRC, if the correct treatment had been in place for periods starting before 1 June 2022, will not be collected. Businesses will not be penalised in relation to those amounts. In these circumstances, businesses do not need to amend previously declared returns.

If any businesses have overpaid HMRC while they have been adopting the incorrect treatment, businesses should look to recover these amounts using the standard process to correct errors on your VAT Returns.

The relevant HMRC guidance has now been updated, including VAT Notice 733: Flat Rate Scheme for small businesses.

Find more information on completing your VAT Return to account for import VAT if you are using a VAT accounting scheme and about working out the VAT due on sales in VAT Notice 700/12.

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