26 October 2023 
Andrea Marshall, Tax Specialist
BUFDG has received this response dated 25 October 2023, from HMRC in response to questions raised regarding when the Error Correction Notice limits of £50k apply to overpaid import VAT:
Overpaid Import VAT: Clarification of HMRC Guidance
Is import VAT input Tax
Import VAT is VAT and is recoverable as input tax subject to the normal business rules. However, import VAT is treated as a duty of customs unless it is specifically stated in secondary legislation that it shouldn’t be.
When import VAT is treated as a custom duty and how errors are corrected
Where an institution does not wish to use Postponed VAT Accounting (PVA), or where the goods do not qualify for PVA because they will be used solely for a non-business purpose, the import VAT is charged and collected as if it were a customs duty. A charge is raised and where a duty deferment account is used the import VAT is taken from the account at the same time as any customs duty is payable. Where an institution does not use a duty deferment account the import VAT and duty must be paid at the point of entry in the UK.
When an institution identifies an overpayment of import VAT has been made, and has satisfactory evidence for this, the institution may adjust the VAT return to reclaim the overpaid import VAT. This is permissible under Regulation 121E of the VAT Regulations 1995, provided the claim is within the four years of the accounting period of which the import took place.
It is accepted that these errors take place outside of the VAT return and VAT error correction rules do not apply, regardless of the value. Therefore, adjusting for overpaid import VAT in these circumstances is not subject to Regulation 34 of the VAT Regulations 1995.
It should be noted, if at a later period, it is identified that the adjustment made on the VAT return following the import VAT error, is also incorrect, then any further amendments to the VAT returns would be treated as a correction of an error to the VAT return and would be caught under Reg 34 and normal Error Correction Notice (ECN) rules would apply.
By way of example:
An institution pays standard rate import VAT in January 2023, either at the point of import or via a duty deferment account and does not use PVA.
Error 1. When reviewing the C79 in March 2023 the institution realises that they were entitled to an import VAT relief and the import VAT should have been zero rated. Consequently, the institution has overpaid import VAT. The institution corrects this Under Regulation 121E by adjusting its April 2023 VAT return.
This adjustment is not subject to Regulations 34/35 as there were no errors on the VAT return so there is no requirement for an ECN, regardless of value.
Error 2. During the Institution’s end of year review in July 2023 it identifies that not all of the imports included on the March C79 met the criteria for reliefs and consequently there was some import VAT due. The institution corrects this error by:
a) If the net value of the error is below the ECN threshold of £50k, and is not more than one per cent of the box 6 figure on the VAT return, adjusting the VAT return to account for the additional import VAT due; or
b) If the net value of the error exceeds £50k, an ECN will need to be sent to HMRC.
Error 2 is treated as a correction of an error on a VAT return (because of the adjustment made on the earlier April 2023 VAT return – Error 1) and is therefore caught by Reg 34.
Non-Business imports and PVA
You can account for import VAT on your VAT return if you import goods which:
• will be used for business and non-business purposes
• you do not know if the goods will be used for business purposes at the time that you import them
You cannot account for import VAT on your VAT return if you import goods you know will be used solely for non-business purposes.
When import VAT is accounted via Postponed VAT Accounting and how errors are corrected
Where an institution uses Postponed VAT Accounting (PVA), the import VAT is no longer treated as a customs duty, because it is declared on the VAT return as output tax with input tax being recoverable subject to normal VAT rules.
If an institution uses PVA and in a later period identifies an error which results in an overpayment of import VAT, if they have supporting evidence and the error is identified within 4 years of the date of import, the error can be corrected by adjusting the VAT return. This is permissible under Regulation 121E of the VAT Regulations 1995.
However, as the error originates by a declaration on the VAT return as output tax, this error is caught within Regulation 34 and therefore subject to normal ECN rules and error thresholds. If the error value exceeds the ECN threshold, then an ECN is required to be submitted. However, if the error value does not exceed the ECN threshold, then the error can be corrected via the VAT return.
By way of example:
An institution accounts for their import VAT via PVA on the January 23 VAT return. They declare the import VAT due via box 1 and partly recover input tax in box 4 in accordance with their partial exemption recovery method. Consequently, the import VAT is no longer treated as a customs duty as it is declared on the VAT return.
Error 1. On reconciling its purchases, the institution identifies that standard rate import VAT was incorrectly charged as the customs agent had not followed the Institutions declarations instructions, resulting in an overpayment of import VAT on the January 2023 VAT return as the import qualified for the zero rate of import VAT.
This meant that the incorrect value was declared in box 1 of the VAT return for output tax and an incorrect claim for input tax was made in box 4.
The institution has sufficient evidence to support a claim for overpaid import VAT and over recovered input tax to adjust its April 2023 VAT return. The institution corrects this error by:
a) If the net value of the error is below the ECN threshold of £50k, and is not more than one per cent of the box 6 figure on the VAT return, adjusting the VAT return to account for the additional import VAT due; or
b) If the net value of the error exceeds £50k, an ECN will need to be sent to HMRC.
The institution was able to recover the overpaid Import VAT because the error occurred within 4 years of the date of import and it satisfied the conditions in Regulation 121E which enables the overpaid import VAT to be recovered by the VAT return. Regulation 34 also applies to this scenario as the original error was on the VAT return submitted in January 2023.
Links to useful guidance
• Complete your VAT Return to account for import VAT - GOV.UK (www.gov.uk)
• Regulation 34 The Value Added Tax Regulations 1995 (legislation.gov.uk)
• How to correct VAT errors and make adjustments or claims (VAT Notice 700/45) - GOV.UK (www.gov.uk)
• Regulation 121E https://www.legislation.gov.uk/uksi/1995/2518/contents
• Check When You can Account for Import VAT on Your VAT Return https://www.gov.uk/guidance/check-when-you-can-account-for-import-vat-on-your-vat-return
25 October 2023
