Introduction
From 1 January 2021, Great Britain (England, Scotland and Wales) left the EU VAT system for goods. As a result, the movement of goods between GB and other countries is no longer treated as EU trade.
Territorial Treatment of Goods – Great Britain
From 1 January 2021:
- Goods leaving GB to the EU or non-EU countries
→ Treated as exports - Goods arriving into GB from the EU or non-EU countries
→ Treated as imports - Goods moving between GB and Northern Ireland
→ Subject to special rules (outside the scope of this article)
Core VAT Principle – Place of Supply for Goods
The VAT treatment of goods depends on the place of supply rules in VATA 1994, s.7, which determine where a supply is treated as taking place for VAT purposes.
In most cross-border goods scenarios, s.7(7) applies:
- Goods leaving the UK → UK place of supply
- Goods arriving in the UK → No UK place of supply
If there is a UK place of supply, the supplier must consider:
- Whether they are required to register for UK VAT
- The correct VAT liability (e.g. zero-rated or standard-rated)
Crucially, the supplier’s location is irrelevant. UK VAT applies based on where the goods are located and where they move, not where the supplier is established. As a result, non-UK businesses can still be required to register for UK VAT (VATA 1994, Sch 1A).
Example – Non-UK Business Required to Register for UK VAT
A US company purchases goods that are stored in a UK warehouse. The company then sells those goods to customers in the EU, arranging shipment directly from the UK to the EU.
- The goods are located in the UK at the time of sale
- The goods are leaving the UK
Goods Leaving Great Britain – Exports
What Is an Export?
From 1 January 2021, an export occurs where a GB trader sells goods:
- To an EU country, or
- To a non-EU country (e.g. the USA or China)
VAT Treatment of Exports
- Exports are zero-rated for UK VAT, regardless of the type of goods
(VATA 1994, s.30(6)) - Zero-rating applies only if export conditions are met
Evidence of Export
To apply zero-rating, the supplier must retain satisfactory commercial evidence that the goods left the UK, such as:
- Bill of Lading
- Air Waybill
- Other acceptable transport documentation
Example
A GB business sells machinery to a US customer. If the business can evidence that the goods were exported within three months, the supply is zero-rated for UK VAT.
Goods Entering Great Britain – Imports
What Is Import VAT?
Import VAT is not VAT charged by a supplier. It is a tax charged by HMRC on the act of importing goods into the UK.
When goods are imported into GB:
- Import VAT is charged at the same VAT rate that would apply if the goods were supplied in the UK
- The importer is legally responsible for the VAT
This ensures VAT neutrality between:
- Buying goods from a UK supplier, and
- Importing goods from overseas
Postponed VAT Accounting (PVA)
What Is PVA?
Postponed VAT Accounting allows UK VAT-registered businesses to:
- Account for import VAT on their VAT return, instead of
- Paying import VAT upfront at the border
PVA does not remove import VAT. It simply changes when and how it is accounted for.
How PVA Works
Under PVA, import VAT is accounted for in two places on the VAT return:
- Box 1 (Output VAT)
This records that VAT is legally due to HMRC as a result of importing goods into the UK. - Box 4 (Input VAT)
This records the business’s right to recover that VAT, subject to the normal input tax rules.
This mirrors the old system:
- Previously, VAT was paid at the border and reclaimed later
- Under PVA, both steps happen on the VAT return, with no cash payment upfront
Why Import VAT Is Shown in Both Boxes
Import VAT must appear in Box 1 because VAT must be declared as due before it can be reclaimed.
Showing it only in Box 4 would allow recovery of VAT that was never declared as payable.
PVA preserves the core VAT principle:
Output tax must be declared before input tax can be recovered
Conditions for Using PVA
To use PVA:
- Goods must be imported for business purposes
- The importer must be UK VAT-registered
- The UK VAT number must be quoted on the customs declaration
- VAT must be accounted for on the VAT return covering the period of import
Small Consignments (Goods Valued at £135 or Less)
For goods valued at £135 or less:
- No import VAT is charged at the border
- The transaction is treated as a UK domestic supply
- UK VAT is charged at the point of sale
Where the customer is UK VAT-registered, VAT is typically accounted for using a reverse-charge-style mechanism, resulting in no net VAT cost for fully taxable businesses.
