Postponed accounting for Irish businesses

Summary

How to record transactions using postponed accounting in Sage Accounting.

Resolution

From 1 January 2021, the government has introduced postponed accounting for import VAT on goods brought into Ireland from outside the EU.

This will improve your business cash flow and means you can declare and recover import VAT in the same VAT return, rather than paying import VAT for goods at the Irish border or reclaiming the VAT from Revenue.

This also applies to imports from Rest of the World countries (ROW).

Businesses must choose to either use postponed accounting for all their imports or not use it at all. It's not possible to use postponed accounting on a transaction by transaction basis.

There's no change for goods purchased between Ireland and Northern Ireland, they'll continue to be treated in the same way as other EU purchases.

Find out how postponed accounting works and set up your business to use it.

Is it right for your business?

If you regularly buy from the UK or other countries outside Europe, it can significantly improve your cashflow, as you don’t pay VAT on things you haven’t received yet.

If you want to use postponed accounting we'll automatically work out the VAT postings for you.

How it works

To understand the impact postponed accounting could have on your business, compare the same transaction posted with, and without postponed accounting:

On 1 January your business buys goods from GB for purely business use, costing €20,000.

Without postponed accounting

Date		Invoice amount	Amount paid
1 January	You receive an invoice from your supplier for the cost of the goods. The VAT is zero rated, so the invoice is just for the net value.	€20,000
3 January	Your car arrives in Ireland. You pay customs duty at 10% on the import. You also pay VAT at 21% on the duty.	2,420	2,420
3 January	Record this as an invoice and a payment. Pay VAT on the car and record this as a separate invoice to Customs.	4,200	4,200
4 January	Your car is delivered and you pay the original invoice.		20,000
9 April	You submit your VAT Return. The VAT on this transaction is recorded in the relevant box of your VAT return along with the purchase value. This reduces your VAT liability.		-€4,620

With postponed accounting

Date		Invoice amount	Amount paid
1 January	You receive an invoice from your supplier for the cost of the goods. The VAT is zero rated, so the invoice is just for the net value. As you're using postponed accounting, you estimate the VAT at 21%. The estimated VAT of €4,200 is recorded your next VAT return.	€20,000	€20,000
3 January	Your goods arrive in the UK. As you have postponed the VAT, the import VAT is not paid. If you use an import agent, they will pay the duty and then charge you and add their fees. You receive and pay the invoice from your import agent for €2,000 duty and €420 VAT.	€2,420	€2,420
2 February	You receive and check your monthly import VAT statement against the estimated VAT recorded on your supplier invoice. Use the Overseas purchase of goods report to help you. If the estimated VAT is incorrect, enter a journal to adjust the VAT on you next VAT return.		€0
9 April	Submit your VAT Return. The estimated VAT is on your VAT Return cancel each other off, no VAT is due.

Record transactions using postponed accounting

Before you start

You need to enable postponed accounting in settings.

Go to Settings, then Business Settings.
Select Accounting dates & VAT.
Select the check box next to Use postponed accounting to deal with import VAT.
Click Save.

Estimate the VAT on your supplier's invoice

This is where you estimate the amount of Import VAT and declare it when you record the invoice from your supplier. In most cases the import VAT is charged at the same rate as a domestic purchase.

When you receive your monthly statement from the Revenue, check the VAT on the statement matches the VAT declared on the invoice. Record any differences as a journal to adjust the VAT return.

For example, you buy goods worth €20,000 from a supplier outside the EU. The import VAT due will be around €4,200 so you include this on your supplier invoice. When you get your monthly statement from Revenue the actual import VAT is €4,198 so you need to make an adjustment to add to your next VAT return.

Enter the supplier invoice:

Select your supplier.
Enter the details of the goods purchased as normal.
The VAT rate will automatically be set to Zero Rated. Change the VAT Rate to Standard or Lower Rate as required.

This automatically applies postponed VAT on your invoice. Although VAT is not shown on the invoice, we estimate the VAT for you and record it as a VAT on a sale (Box 1) and VAT on a purchase (Box 4) on the VAT return.

Adjust the VAT when you receive your monthly statement.

Once you receive your monthly statement from revenue, check that the VAT estimated on the invoice matches the import VAT due on the statement.

Use the Overseas Purchase of Goods report to help you reconcile your VAT return, and make VAT adjustments where required. This now includes both GB and ROW sales and shows which invoices have estimated VAT.

If there is a difference between the estimated VAT and the VAT on your monthly statement, record an adjustment using a journal.

In our example, we estimated the VAT at €4,200 but the monthly statement is showing €4,198 so we need to enter a VAT adjustment journal for the €2.

From Journals, select New Journal.
Enter the details.
Add amount of the adjustment on two lines, one VAT on sales and one for VAT on purchases.

To reduce the VAT, record VAT on sales as a Debit and VAT on purchases as a Credit.

To increase VAT, record VAT on sales as a Credit and VAT on purchases as a Debit.

Make sure you select the Include On VAT Return check box.

Ledger Account Incl in VAT Return Debit Credit

2200 VAT on Sales Yes 2

2201 VAT on purchases Yes 2

Ledger Account	Incl in VAT Return	Debit	Credit
2200 VAT on Sales	Yes	2
2201 VAT on purchases	Yes		2

Record the import VAT when you get your monthly statement

This is where you don't estimate the Import VAT and wait to record the import VAT until you get your monthly statement.

Use the Overseas Purchase of Goods report to help you reconcile your monthly statement, and make VAT adjustments where required. This now includes transactions from both GB and other non-EU countries.

For example, you buy goods worth €20,000 from a supplier outside the EU. When you get your monthly statement from the Revenue the actual import VAT is €4,198, so you record this as a VAT journal and update your VAT return.

Enter the supplier invoice

Select your supplier.
Enter the details of the goods purchased as normal.
The VAT rate will automatically be set to Zero Rated and VAT is not included on your VAT return.

Record the VAT when you receive your monthly statement

Once you receive your monthly statement from Revenue, record the import VAT using the value from your statement. In our example, the VAT on the statement is €2 less than the amount we estimated.

From Journals, select New Journal.
Enter the details.
Add amount of the import VAT on two lines, one for VAT on Sales as Debit and one for VAT on purchases as a Credit.

Make sure you select the Include On VAT Return check box.

Ledger Account Incl in VAT Return Debit Credit

2200 VAT on Sales Yes 4198

2201 VAT on Purchases Yes 4198

Ledger Account	Incl in VAT Return	Debit	Credit
2200 VAT on Sales	Yes		4198
2201 VAT on Purchases	Yes	4198

Declare the VAT when you receive the invoice from your import agent

This is when you declare the VAT when you receive the invoice from your import agent, when your import agent provides an accurate postponed VAT value for you.

Record invoice from your import agent

Make sure you have set up a supplier record for your import agent and selected the Is Import agent check box. These could be an import agent, freight forwarder or Customs and Excise.

Select your import agent.
Select Use postponed accounting to deal with import VAT.
Record the details from the importer invoice.
On a separate line, enter a VAT only line for the import VAT.

The VAT is recorded and then automatically deducted from the same invoice.