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• # 80755
• Mon 12 Mar 2012 05:59 PM

Hi


Can anyone guide me through the procedures and timings for recording and reclaiming VAT on imported goods from China. This is a new area to me and I am finding the information on HMRC regarding this a little vague to say the least.


My client, who is VAT registered and operating the Cash Accounting system has recently begun importing goods from China.
On ordering the goods the supplier issues a Pro-forma invoice in USD. The terms of payment being 50% in advance and Balance Pre- shipment.
Several weeks later when the goods have arrived in the UK port he receives various invoices from a Shipping Company for Customs Duty plus a whole raft of other charges for items such as Deferment,Customs entry fees, Terminal Handling, Demurrage, Quay Rent UK Haulage etc.etc.etc.

Contained in these invoices is also of course a figure for Customs VAT. I assume (but I am not sure!!) that this figure includes not only the VAT calculated on the goods imported but also that for the ancillary services mentioned above, because non of the shipping companies invoices show VAT seperately for any of these. ( I have done a quick calculation using HMRC's Period tables plus the VAT on those services I think are VATable and am close to within a fiver)


My instincts tell me not to account for the VAT on the suppliers Pro-forma but to extract the figure from the Shipping Companies Invoice and account for it when we make payment, which is prior to us receiving the goods anyway.


Any help would be much appreciated.



Steve

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• # 80756
• Mon 12 Mar 2012 07:27 PM

Hi Steve,

I used to deal with importing goods from the Far East while I was in employment.

You need to pay the duty and VAT to the shipping company as per their invoices. This will be based upon the shipped value of the goods converted into sterling plus import charges etc.

The invoice that you pay from the supplier in the Far East will be a seperate transaction and can be input in your accounts with 0% VAT (zero rated).

Make sure you keep the HMRC issued form C79 as this confirms the amount of import VAT you have paid and should also tie in with your paymenst to the shipping company.

Hope that helps a little.

Gina

 

• GINA WESTWELL
  VICTORY BOOKKEEPING SERVICES 
  www.victorybookkeeping.com 
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• # 80770
• Tue 13 Mar 2012 08:24 AM

Hi Steve,

I work in an employment environment where these transactions are commonplace, so can add a little more to Gina's very helpful answer.

The import must be regarded as two separate transactions - purchase from China, and import services from the forwarder.

Vendor - a proforma is merely an order confirmation demanding part payment. China should not charge VAT which is how your question reads. Simply pay the vendor as agreed, and reconcile your AP account in the normal way. Zero rated transaction.

Forwarder - handles your import at point of entry to the EU , probably a  UK airport.
An import entry is created electronically on your behalf, with the import VAT and duty being calculated based upon information provided by the vendor on the commercial invoice that accompanies the goods. Two forms are produced which should be part of the bundle sent to you : Forms C88 and E2.  Tucked in the detail of these are all the values you are trying to calculate relating to the import. Keep these forms as they are your proof of import, and are auditable, so keep them with your C79 .

The forwarder bills you for the service, usually about £30 for "making an entry".  This is VATable as a UK service.
You also pay the forwarder for the import duty and VAT ( plus a cash handling fee of around 2% ) which they pay to HMRC direct on your behalf. The goods are released after payment unless you have a deferment bond in place.
Timing of the input tax reclaim should therefore be straightforward.

Form C79 is the only evidence that HMRC will accept to reclaim the VAT incurred. This should arrive mid month following the month of import, and summarises all of the imports against that VAT number in the month. It is a distinctive ocean green/blue in colour.


Finally, two cost saving tips.

1.Duty - make sure that the 10 digit customs commodity code applied to the goods imported fit their description, or else you will be paying the wrong amount, often a (default) higher amout than is necessary. This is a bottom line cost that cannot be avoided, so should be legitimately minimised, by informing the vendor/ forwarder if incorrect.

2. Forwarders - be sure to get the C88 and E2 or withhold payment - without these you cannot prove your import at audit, and may then be required to repay your import VAT, regardless of holding the C79. Forwarders are not always very diligent in sending everything on, and will only short term archive, so you need to keep track of their mailings to your client.

Hope this helps.

• Kind regards,
  PeteL  

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• # 80774
• Tue 13 Mar 2012 09:22 AM

Wow Pete- what an answer......I see a presentation coming on!

Gina 

• GINA WESTWELL
  VICTORY BOOKKEEPING SERVICES 
  www.victorybookkeeping.com 
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• # 80932
• Fri 16 Mar 2012 01:09 PM

Hi Gina and Peter


Sorry for the delay in replying. Thank you both very much for the information you provided, particularly the detail you went into peter   Most helpful


Thank you again


Steve  

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• # 85114
• Thu 06 Sep 2012 09:02 AM

Steve99.9said:

“Hi Gina and Peter


Sorry for the delay in replying. Thank you both very much for the information you provided, particularly the detail you went into peter   Most helpful


Thank you again


Steve  ”

• Lisa
  Cameo Bookkeeping and Accountancy Services
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• # 101714
• Mon 29 Sep 2014 09:43 AM

Sorry to wake up an old thread, but it's answered a lot of the questions I originally had!

Thanks for all of the great advice there about the correct forms and who pays who the VAT etc.

My client is importing a few items a month from Australia. I have the invoices from the suppliers, and from how I interpret the other posts, I post the amount (I'm using Quickbooks Online) as a zero rated expense. I however don't have any back up paperwork (C79s) from him yet - will be asking him to have a look ASAP.

Re the VAT and duty etc paid by the shipping company on my clients behalf, he has paid the company back. Their fee - £15 +vat is a separate expense, but how do I account for the VAT paid etc in Quickbooks for it to show up on the VAT return to claim back? It's not just VAT, it's Duties as well.

Thanks in advance for your help.

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• # 101796
• Wed 01 Oct 2014 04:42 PM

Anyone?!

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• # 101810
• Thu 02 Oct 2014 12:52 PM

Hi L-J,

Just to summarise from my original post :

The client needs original copies of forms C79 (HMRC), C88 and E2 (Freighter) to legitimately reclaim import VAT. The best way to post this whilst you await these documents to be obtained and forwarded, is to prepay the cashbook VAT entry. Import VAT is not the same as ordinary trading VAT entered by an accounts payable posting, and so it is best transacted by either cashbook or GL journal entries into your input VAT account.

Duty is an irrecoverable bottom line expense, so set up a P&L code for it, and check the 10 digit tariff code is EXACTLY correct for the items imported.

The freight handling costs are just a normal vatable service transaction.

When you next see the client, it will be worth asking if they have built the additional costs of import into the sales price model they quote from. Margins, and especially cashflow, are often a lot tighter than most small traders appreciate at first glance.

• Kind regards,
  PeteL  

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