VAT is a nightmare, or at least it can be considered as such after UK business owners entered the baptism of fire following Brexit and are continuously navigating the waters of post-Brexit trade. Combining the ping pong of customs declarations, plugging holes in the cash, and having to learn hieroglyphics in the form of HMRC acronyms, managing VAT can leave one with a hangover that is closer to compliance than translating ancient hieroglyphs.
Among the most critical pain areas in intensive enterprises? An advance payment of import VAT. It costs a lot of money, which is undesirable when an individual has shipping fees to handle, supplier fees to pay, and other operational costs to pay. This is where Deferred VAT is introduced.
In crude terms, Deferred VAT gives you an option of delaying payment of the VAT on imported items until your subsequent VAT filing, as opposed to paying up immediately at the border. Initially launched as part of the Postponed VAT Accounting (PVA) mechanism, this scheme could facilitate post-Brexit life; however, it is currently one of the most potent cash flow management tools adopted by businesses on the UK market.
Think of it like buying on a 30-day credit plan from HMRC, interest-free, no forms to fill, no awkward approvals (unless you're going for a complete VAT deferment account). But just like any financial strategy, it’s not a one-size-fits-all solution. Using Deferred VAT can be incredibly beneficial, but only if your bookkeeping is airtight, your reconciliation is regular, and your VAT returns are spot-on.
Deferred VAT refers to the ability to delay the payment of VAT on imported goods until a later date, usually when you file your next VAT return. This option became more prominent after the UK left the EU, and the introduction of Postponed VAT Accounting (PVA) in January 2021 made it accessible to a broader range of businesses.
Under the standard model, businesses pay import VAT as soon as goods arrive in the UK, right at customs. For companies importing regularly, this creates immediate cash flow pressure. With Deferred VAT via PVA, you don’t pay at the border. Instead, you:
Declare the import VAT in your next VAT return.
Simultaneously reclaim the same amount (if eligible).
End up with a cash-neutral transaction, you owe and reclaim the same amount.
It’s essentially the business equivalent of buying on credit, with zero interest. And that’s a win for any company looking to improve working capital without relying on loans or credit lines.
The terms "Deferred VAT" and "VAT Deferment Account" are often used interchangeably, but they are not the same thing.
Available to all VAT-registered businesses in the UK importing goods.
No approval required from HMRC.
VAT is accounted for via the VAT Return, not paid upfront at the port.
You access your Monthly Postponed Import VAT Statement (MPIVS) via the Customs Declaration Service (CDS).
2. VAT Deferment Account (DAN):
A separate facility where you can defer payment of:
Import VAT
Customs duty
Excise duty
Requires a formal application and often a financial guarantee.
Payment is made via Direct Debit, usually once per month.
Ideal for larger businesses handling high volumes of imports or duty charges.
In short, PVA is simpler and more flexible, while a VAT Deferment Account is more comprehensive but also more administratively intense. Businesses can choose either, or both, depending on their trade volume and risk appetite.
Now let’s get into the nuts and bolts: how does this affect your VAT return?
When you use Postponed VAT Accounting, your VAT return will reflect import VAT like this:
Box 1 (VAT due on sales and other outputs) – You’ll report the amount of VAT due on imported goods.
Box 4 (VAT reclaimed on purchases and other inputs) – You’ll claim the same amount as input tax (if eligible).
Box 7 (Total value of purchases excluding VAT) – Include the total value of imported goods.
Box 9 (Total value of acquisitions from other EU countries) – Only if applicable.
The result? If you’re entitled to full VAT recovery, the deferred VAT effectively cancels itself out, no cash outflow, just clear accounting.
But here is where it gets tricky: your figures must match the MPIVS available through the CDS portal. HMRC expects precise alignment between your import statements and your VAT return.
Although deferred VAT can reduce your financial burden, it complicates the process of VAT reconciliation. Mismatches with the MPIVS or reporting errors may result in:
Input VAT overstatement (risking HMRC fines)
VAT underreported, which results in a loss.
Unusual differences that lead to audits
You have to download the MPIVS each month, compare it to your customs declarations, and make sure the right VAT is reported and recouped. Businesses that already struggle with VAT may find this extra layer of complexity stressful.
You import goods regularly from the EU or globally.
You face cash flow challenges due to large upfront VAT payments.
Your accounting systems or team can manage the additional reconciliation workload.
You have a reliable bookkeeper or outsourced VAT service who can stay on top of monthly statements.
You want to avoid paying VAT upfront at customs and simplify logistics.
Your imports are infrequent and the effort outweighs the benefits.
Your internal bookkeeping is already a hot mess.
You have a history of VAT return errors or late filings.
You don’t have access to the Customs Declaration Service (yes, some businesses forget to register).
You lack the resources to handle monthly reconciliation manually or via automation.
Bottom line? Deferred VAT can help with liquidity, but it must be paired with accurate processes, careful reporting, and, ideally, some outsourced expertise.
If the above paragraphs made you want to scream into your Excel sheet, you're not alone. Deferred VAT is helpful, but it creates admin overload. That’s why outsourcing VAT management is one of the smartest moves a business can make.
Tracks import VAT using your MPIVS and matches it with invoices and customs entries.
Handles accurate reconciliation to avoid penalties or misreporting.
Prepares and files VAT returns on time and in full compliance.
Monitors HMRC updates and VAT rules, so you don’t have to.
Frees your in-house team from time-consuming tasks.
Outsourcing VAT turns into a strategic choice for many companies, particularly SMEs managing imports, payroll, and day-to-day operations.
Although deferred VAT has many benefits, it could backfire if you ignore the details. Keep in mind these common errors:
Inability to access the MPIVS: Your VAT reporting will probably be incorrect if you do not have this document.
Misreporting import VAT amounts: Even a minor error can result in fines or other compliance problems.
Claiming VAT before entitlement: Only reclaim when you have proper documentation.
Not reconciling each month: Deferred VAT requires monthly matching—not just quarterly filing.
Ignoring changes in VAT legislation or CDS portal rules.
Pro Tip: Even if you manage VAT internally, consider outsourcing just the reconciliation process, it is where most errors happen.
Deferred VAT isn't a one-size-fits-all solution, but it can be a good move for UK businesses looking to improve cash flow and manage import costs more efficiently. Whether you're a growing eCommerce store importing goods from outside the UK or a manufacturing business navigating large shipments, deferred VAT allows you to avoid paying VAT at the point of entry offering valuable breathing space in tight financial cycles.
But flexibility also entails accountability. Companies must maintain correct VAT reconciliation records, file VAT returns on time. VAT outsourcing is a wise and scalable choice if your internal resources are limited or you are unsure about handling the process internally. From creating your VAT deferment account to guaranteeing complete compliance and reporting, a trustworthy outsourcing partner can take care of everything, freeing you from the burden of tax season so you can concentrate on expanding your business.
Managing deferred VAT and staying compliant with UK VAT laws doesn’t have to be overwhelming. At Aone Outsourcing Solutions, we simplify the entire VAT process from setting up your VAT deferment account to filing accurate VAT returns, reconciling discrepancies, and ensuring compliance.
With our expert VAT outsourcing services, your business can save time, and focus on growth. Whether you are a small business importing goods or a larger firm seeking scalable VAT support, our tailored solutions can fit your needs.
Q1. Is Deferred VAT the same as Postponed VAT Accounting?
Yes, in most cases. Deferred VAT typically refers to PVA, where import VAT is accounted for later in your VAT return instead of paid immediately.
Q2. Do I need approval to use Postponed VAT Accounting?
No. Any UK VAT-registered business can use PVA without prior approval.
Q3. What’s the difference between PVA and a VAT deferment account?
PVA defers VAT only; a VAT deferment account can defer VAT, customs duties, and excise. It also requires an application and often a financial guarantee.
Q4. Can I reclaim deferred VAT immediately?
Yes, if you’re eligible to reclaim input VAT, you can report and reclaim the import VAT in the same return.
Q5. Where do I find my MPIVS?
Log in to the Customs Declaration Service (CDS) portal. You’ll find your Monthly Postponed Import VAT Statement under your account.
Q6. Is outsourcing VAT services worth it for deferred VAT?
Absolutely—especially if you import regularly. A good VAT outsourcing partner ensures compliance, accuracy, and frees up your internal resources.
