VAT and Customs Duty on C88 Form


I import goods from outside the EU which gets delivered to the seaport. The shipping company clears the customs on my behalf and creates a C88 document which has both VAT and Customs Duty, and the C88 form is sent to me to make a payment to HMRC FAS with a reference number directly. Upon payment, the goods are released and I get the delivery.

I am a Fixed Rate VAT registered business and cannot claim VAT on normal purchases, however, I can balance out the VAT already paid to HMRC with my sales. The VAT I pay is in thousands.

Please can someone help me how to tag this amount from my bank account as VAT already paid to HMRC? There is an option to tag VAT, however, the amount to tag also has a small portion of Customs Duty along with VAT, so I cannot tag it directly as VAT.

How do I go about making the right tagging, so I could reclaim VAT or balance out while submitting the VAT returns (I am on annual VAT filing mode, being a small business, and haven’t submitted VAT via quickfile yet, but have to do it very soon.)

Really? I thought part of the point of fixed rate was that you can’t reclaim your input VAT (including on imports and acquisitions) except on large capital purchases.

VAT is being paid to HMRC on the arrival of goods to the UK shore. My understanding is that this VAT is to be deducted from the VAT collected (usually higher) from the paying customers when we file the VAT. Now the question was how do i separate out the Customs charges from the VAT charges. Do I raise a separate invoice just for VAT and Customs? Or use the inbuilt VAT tagging feature of Quickflre.

If you were not on the Flat Rate scheme then this would be correct, but under Flat Rate I don’t think you’re entitled to deduct the import VAT from your box 1 value calculated on your flat rate - this would be equivalent to reclaiming input VAT on a purchase within the UK, which is definitely not allowed other than for capital assets (the per-sector flat rate percentages are set based on the typical ratio of input to output VAT for the relevant sector, so this is already accounted for in the percentage you’re using).

Generally, what I would do is raise a purchase in QuickFile for whatever you have been charged. If you were not on Flat Rate then you’d separate out the VAT part from the duty part (you might not be able to enter a VAT-only amount, the workaround I’ve used in the past is to enter a two-line purchase, e.g. if I needed £20 VAT with no net then I’d have one line for £100 at 20% VAT and another line for -£100 with no VAT), but on flat rate you don’t have to split it because you can’t reclaim the VAT.

So whats the definition of Capital Purchase? I purchased goods worth £25k and paying £5k as VAT to the HMRC, doesnt it mean that it should balance out while filing the VAT for the sales? If so, it doesnt make sense to be on flat rate VAT.

Basically, the only things you can offset the VAT on when you’re on the flat rate scheme are individual purchases each worth over £2,000, of fixed assets like machinery or vehicles. Goods you are buying for resale are specifically excluded because the VAT you pay on those is supposed to be absorbed into the flat rate percentage you’re paying on your sales.

It all depends on the relationship between your sector’s flat rate percentage and your typical gross profit margin. If you’re buying goods worth £25k and paying £5k VAT, then selling those goods at a 50% gross profit margin for £50k+VAT (£60k including VAT) then the VAT you’d pay to HMRC on the normal scheme is £5k (£10k you charged on sales, minus £5k you paid on purchases).

For the Flat Rate scheme you don’t reclaim purchase VAT but you only pay over a lower percentage of your sales VAT and you get to keep the difference. Now £5k of VAT paid to HMRC on £60k of VAT-inclusive sales equates to a flat rate percentage of 8.33%, so for a GP of 50% you’d have to be on a flat rate percentage of 8.33% or below for it to save you money compared to standard VAT. In practice it’d need to be slightly lower than that to cover VAT you’d normally be able to reclaim on purchases other than just the stock. If your GP is higher then your break even FR % will also be higher, you (or your accountant) will have to run the numbers for your own situation to work out which scheme leaves you better off.

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