How to record postponed accounting for VAT supplier invoices

Postponed accounting for VAT requires that you setup new VAT codes in your accounts system/bookkeeping software.

The main reason for these new VAT codes is to allow you to be able to enter all the related transaction values on your VAT3 and VAT RTD forms for the Revenue Commissioners.

Under Irish VAT law you are required that purchase invoices are analysed as resale or non resale transactions. Therefore, you need at least 6 new VAT codes. (see note 1 below)

Resale VAT codesNon-Resale VAT codes
PAV01R @ 0%
PAV02R @ 13.5%
PAV03R @ 23%
PAV01N @ 0%
PAV02N @ 13.5%
PAV03N @ 23%
suggested vat rate codes or use your own codes

The VAT can be calculated but is not posted as a value to any General Ledger account. It is similar to the way EU transactions are dealt with.
You must use the VAT code rate applicable had the goods been bought in Ireland.
You need to be registered for VAT and have an EORI number.

Duty (it is not VAT)

Duty must be setup as a General Ledger code, it is a cost to the business, it is not reclaimable.
If there is no duty payable on the import, then duty amount is zero

Postponed Accounting for VAT Example:

Invoice- UK Goods Supplier
Goods – Net £1,000
Customs & Excise Exchange Rate used     0.885 (see note 3 below) and (fx rate issues)
UK Supplier cost in EURO (£1,000 @ 0.885)
Goods Net €1,129.94

Invoice- Freight Company supplier
Service: Freight UK to Dublin Port – Net €100

Invoice- Customs and Excise supplier
Total charge for Duty calculation €1,229.94 (€1,129.94 + €100)

Duty Rate 5%                                       €61.50 (1129.94 x 5%) (see note 3 below)
Customs and Excise will issue you with an invoice for the charge (see note 2 below)

Total cost for VAT calculation        €1,291.44 (€1,229.94 + €61.50)
(see note 4 below on total cost calculation)

VAT at 23%                                           €297.03 (1291.44 x 23%) (see note 3 below)

Supplier Invoice Transactions Net and its VAT code analysis

Invoice 1. UK Supplier Invoice
Net €1,000
Vat Code: PAV03R

Invoice 2. Freight Supplier Invoice
Net €100
VAT code: PAV03R

Invoice 3. Customs & Excise as a Supplier
Net €61.50
VAT code: PAV03R

Exchange Rate Issues

Invoice 1. The VAT calculated on £1,000 is £230 (1000 @ 23%)
This is a GBP (Sterling Pounds) amount
This needs to be in EURO
An issue arises where the Customs and Excise uses a rate of 0.885 and your accounts system uses a rate of 0.900. So, you end up with two different values

£1000 @ 0.885 = €1129.94
£1000 @ 0.910 = €1098.90

There is a difference of €31.04
You should talk with your accounts software support department and ask them how this can be dealt with, otherwise your Postponed VAT values calculated by your accounts system won’t match the Customs and Excise Values

NOTE 1.
Your software may have other features that allow you to analyse transactions as Resale and Non resale purchases or how to transact postponed accounting for VAT. We are going with the simplest method here.
If you don’t import goods at 0% or 13.5% then you may not need to setup those VAT rates. But it is good housekeeping to setup all possible VAT codes for consistency and accuracy.

NOTE 2.
The Customs and Excise section of the Revenue Commissioners will issue you with an invoice for the duty amount, make sure you get it. Or your customs clearance agent may issue you with an invoice and then pay the duty charge on your behalf.

You can also see these invoices using the Revenue On Line Service (ROS)

NOTE 3.
How is the Duty amount and the VAT calculated?

Customs and Excise consider the total cost of getting the goods from China, UK, or other Non-EU Countries to a Port in the EU (usually Rotterdam for Chinese imports and Dublin Port for UK imports). This includes all freight cost to get the costs from the Supplier to the EU. It does not include the cost of freight from an EU port to your warehouse or premises.

That cost of the supplier’s invoice and the freight costs together is what the duty is calculated on.
The VAT is then calculated based on the Product Supplier’s Invoice value, the Freight Suppliers invoice and the Duty
Value for Duty calculation               Suppliers Invoice + Freight Invoice
Value for VAT Calculation                Suppliers Invoice + Freight Invoice + Duty Amount
All values must first be converted to EURO, if in another currency, using the exchange rate as set by Customs and Excise section at the beginning of each calendar month. For customs clearance no other exchange rate can be used. Not your accounts system rate, the rate at which you paid for the goods or any other rate you can think of.

Useful Links:

https://www.revenue.ie/en/tax-professionals/tdm/customs/import-export-policy/customs-import-procedures-manual.pdf Customs Import Procedures Manual

https://www.revenue.ie/en/customs-traders-and-agents/brexit/information-for-businesses/vat-trade-with-gb-after-transition/index.aspx VAT – Trade between Ireland and Great Britain

https://www.revenue.ie/en/vat/goods-and-services-to-and-from-abroad/imports/postponed-accounting.aspx Postponed Accounting

https://www.revenue.ie/en/tax-professionals/tdm/value-added-tax/part07-provisions-relating-to-imports-exports/postponed-accounting.pdf postponed-accounting.pdf