When goods are purchased from a country outside the UK, import VAT may be applied. This usually occurs when the goods supplied are vatable in the buyer's country. Normally a separate invoice is supplied from the courier showing the amount of import duty and VAT due. If your company is registered for VAT you can normally reclaim the import VAT, this is the VAT element of the invoice from HMRC.

NOTE: From 1 January 2021, Postponed VAT Accounting has been introduced in both the UK and Republic of Ireland to improve business cash flow for imports. When using Postponed VAT Accounting, import VAT due on goods arriving in the UK or Ireland can be accounted for on a VAT Return rather than having to pay the VAT as soon as the goods arrive at the border.

CAUTION: If you use Postponed VAT Accounting please use this guide.

For the purpose of this article the following example will be used:

• You receive a delivery from China for a stock item. This item attracts an 8% duty charge when importing to the UK.
• There is a commercial invoice which includes the cost of the item (£100.00), and the shipping charges (£50.00). The total of the invoice is £150.00.
• You will also receive an invoice either from the supplier or the shipping company (depending on the shipping terms) for the Import Duty and Import VAT.
• In this example the value of the duty would be £12.00 (8% of total of goods + shipping + insurance if applicable). The value of the Import VAT would be £32.40 (20% of total of goods + shipping + insurance + duty).

Create a supplier record for the courier

You need to create a new supplier record to record the invoice for the import duty and VAT.

1. Purchase Ledger > Purchase Accounts > Enter New Account.
2. Either create an account for the courier company or, depending on the shipping terms of your delivery, you may receive this invoice from your supplier. Ensure the currency is set to match the invoice, not the overseas supplier currency. For this example we'll just refer to it as courier.
3. Set or create a default nominal code (We’ll use 5101 for this example) for the supplier record which is included in the Purchase’s report category.

Post an invoice for the duty and import VAT

When you receive the invoice from the courier, this is posted to the courier's account.

You cannot reclaim import VAT paid until you have received form C79 from HMRC.

There are two ways to manually create a purchase invoice in the program. You can use either the Invoice or Rapid Invoice feature. In this article we will demonstrate how to use both features as either feature can be used in both scenarios.

If you have received form C79

1. Purchase Ledger > Enter Transactions > Invoice.
2. To record the supplier invoice for duty and import VAT, enter the relevant details, for example:
   • Enter Import supplier account code.
   • Enter the goods value (£12.00 in this example).
   • In the Nominal and VAT Analysis Tab, make sure that the VAT Rate is set to Standard Rate and the Nominal Code is set to 5101.
   • Enter the VAT Value (£32.40 in this example). Make sure that the VAT Value in the Transactions Details section match the value in VAT Analysis section.
   • Enter the narrative as Import Duty and VAT.

   Generally VAT is charged on duty at the same rate as the item being imported. However, if you do not know which VAT rate to apply, you should contact your local VAT office.

3. Save > Close.

You have now posted your duty and import VAT charges. The VAT element is picked up in box 4 in the VAT Return, reclaiming the VAT amount.

You have now completed all of the transactions necessary to reclaim the import VAT and the VAT on duty on goods purchased from countries outside the UK.

If you have not received form C79

1. Create a VAT Rate which does not appear on the VAT Return. Go to Accounting System Manager > Settings > VAT Rates.
2. Click on Add then enter a Code, for this example we’ll use '9’ and Name, for this example we’ll use ‘Not Applicable’. Make sure that the VAT Return box is not ticked, the EC Terms show as ‘Not Applicable’ and the % is 0.
3. Click OK to close the screen.
4. Go to Purchase Ledger > Enter Transactions > Rapid Invoice

    NOTE: This is not available in versions prior to 12.00.0003 (Summer 2017). For earlier versions you will need to raise two purchase invoices using the method described earlier in the article (Purchase Ledger > Enter Transactions > Invoice).

   On the Rapid Invoice Screen (or Invoice screen in earlier versions), enter the following information.

   A/C	Date	N/C	Details	Net	Vat Rate	Vat
   IMPORTS	Date	5101	Import Duty	12.00	0	0.00
   IMPORTS	Date	5101	Import Duty	0.00	9	32.40

5. If you are using the Sage default nominal structure, 5101 is the Import Duty nominal code. The import VAT transaction does not affect this nominal code, as the net value is zero. Generally VAT is charged on duty at the same rate as the item being imported. However, if you do not know which VAT rate to apply, you should contact your local VAT office.
6. Save > Close.

You have now posted your duty and import VAT charges. The VAT element is not included in the VAT Return because you cannot reclaim the VAT until you have received form C79, using the ‘9’ VAT Rate prevents the VAT from appearing on your VAT Return. Once you receive form C79, to reclaim the VAT, post a journal as follows:

1. Nominal Ledger > Enter Transactions > Journal entry.
2. To reclaim the VAT, enter the relevant details in the boxes provided. The T1 tax code ensures the VAT is now accounted for on your VAT Return (the nominal codes shown below are for example only and represent the Input VAT code within your program):

   N/C	Details	VAT Rate	Debit	Credit
   2201	Import VAT adjustment	1	32.40	0.00
   2201	Import VAT adjustment	9	0.00	32.40

3. Save > Close.

You have now completed all of the transactions necessary to reclaim the import VAT and the VAT on duty on goods purchased from countries outside of the UK.