Postponed Accounting for Import VAT in 3 Steps with Sage 200cloud

As we are all aware, the UK left the European Union on 31st December 2020. This means that as far as trade is concerned, the UK is effectively a 3rd country for Irish businesses.

Due to this, the government has set up a new set of VAT rules called Postponed VAT Accounting (PVA) for Irish companies who still wish to trade with the UK.

In this article and step-by-step video, we have provided a simple guide to help Sage 200cloud customers process Postponed Accounting for Import VAT.

What is Postponed VAT?

Since 1 January 2021, the Irish government has introduced a new system called Postponed Accounting for Import VAT for businesses that are registered for VAT and who import goods into the UK from anywhere else in the world. This postponed VAT system will allow businesses to avoid the payment of import VAT at the point of entry, instead is it recorded on your VAT return.

Under the new measures, rather than paying import VAT immediately and then claiming it back on the subsequent VAT return, the VAT amount is entered as an input and output on the same return. So, it is paid and reclaimed in one go.

NOTE: Postponed VAT in Ireland does not include imports from Northern Ireland. They are still being treated as an EU member state.

Processing Postponed Accounting for Import VAT in 3 steps

We have put together a simple step by step guide to processing postponed VAT within Sage 200cloud. This will cover the following points:

Creating the required VAT Code
Entering a purchase invoice with the new VAT rate
Show the impact of this on the VAT Return

1. Creating the required VAT Code

On the next available line, you need to enter the details of the new rate. To do this:

Open Sage 200cloud and go to Accounting System Manager - Settings - VAT Rates
Go to the next available line and under the NAME column, type the name or description of the new VAT rate you will set up.
Tick the option to have it included in the VAT Return and under the TERMS dropdown, choose the option CIS Reverse Charge Purchases.
In the % box, add in the applicable VAT rate percentage.
Add your input and output nominal codes for VAT and click on OK

Create New VAT Rate Image2

We then need to update the applicable suppliers record with the new VAT Rate we've just created. Their default VAT rate will likely be as if they are still part of the EU. This will need to be changed.

Go to: Purchase Ledger – Supplier List
Click on Amend supplier account
In the box that appears, go to the Trading tab and beside Default VAT Code, update the default VAT rate from the dropdown menu.
Click Save

Create New VAT Rate Section 2

2. Enter a Purchase Invoice with the new VAT Rate

In this example, we will enter a purchase ledger invoice where the base currency is Euro but the customer has a Sterling account so everything entered for the supplier will be in Sterling.

Go to: Suppliers List - Invoice
Enter the Goods Value. In this example, we will enter 100GBP and the VAT Value is 20GBP so its 20% of the £100.00.
Add a Reference Code in the relevant box

This will all be notional VAT. It will not be added to the value of your invoice.

Click on the Nominal & VAT analysis tab, you will see that it has brought in the new VAT code you created.

Screenshot 3

Enter a nominal code in the Nominal Analysis section
You will see that the VAT value is still £20 but the Goods Value is £100
Click Save

Once complete if we go back to check the supplier account, the balance outstanding on the accounting is the value of the invoice and not including the VAT, i.e. we owe £100 to the supplier, not £120 to include the VAT amount.

Next if we go to the Transaction Enquiry, it will show the invoice for the balance outstanding (£100 in this example). And if we look at the VAT detail within this screen, you will see the new VAT code that was used and the VAT amount converted from Sterling back to Euro (in this case €22.72). And the NET Value is the balance outstanding converted into Euro (in this example, £100 converted to €113.68). Remember, this VAT amount is NOT owed to the supplier.

3. How does this impact on the VAT Return?

On the VAT return, the value of £20 will be Notional VAT. No VAT is being paid or reclaimed on this transaction. It will update T1 and T2 on the VAT return, cancelling each other out.

Go to Nominal Ledger - Period End Routines - VAT Analysis
On the Current Period Totals tab, if you scroll to the bottom you should see the new VAT Rate with the Euro amounts for both Goods and VAT.
To show the notional VAT, click on the Current Period Returns Tab and you will see that the VAT amount is coming through as both a Sale and a Purchase at T1 and T2, effectively cancelling each other out.

Screenshot 4

Please note, if you have any questions regarding whether your business is required to use Postponed VAT, please contact Revenue Online.

Step-by-Step Video

If you want to see the above steps in action, follow our 10 minute step-by-step video where we will help guide you through the processing of postponed VAT Sage 200cloud.