Accounting for C79 certificates on Xero
Since the UK left the EU and the transition period ended on 31 December 2020, all goods entering the UK are imports, whether from Austria or Australia.
The default position is that when the goods arrive in the UK, import VAT is due to HMRC. The freight agent will usually pay this import VAT and recharge back to the recipient, plus an admin fee. A common misconception is that this VAT can be reclaimed from freight agency invoice. This is incorrect! …and HMRC are always on the lookout for this VAT error.
The correct reclaim document is a C79 certificate – issued by HMRC. Specific guidance on how to obtain these can be found on HMRC’s website: Check how to get your import VAT certificate (C79).
What is the correct posting treatment for these?
This is best illustrated through an example:
- We have purchased goods from outside the UK
- The duty and freight charges on this is £13.50
- The VAT is £35.90
For the above transaction we will received 3 documents:
- An invoice from the supplier. This is the easy one, it can be posted as normal in Xero → with no VAT
- An invoice from the freight company. This is where mistakes can happen. It could look something like this:
Although the above splits out the VAT, you should not post this as VAT. The correct entry on Xero would be:
The nominal codes will vary depending on your setup but importantly the VAT goes to a suspense account so you can review for missing C79 certificates. NB – It’s likely you’ll need to create a new account for this. It should be a debtor account with a code near to your VAT liability nominal.
- The C79 Certificate. This looks something like this:
It poses its own problems as you are unable to post a VAT invoice on Xero.
Therefore you need to
- “gross up” the VAT (i.e create the vat inclusive cost) – to gross it up correctly, you multiply the vat by 5.
- post this as a 20% VAT item (to ensure the VAT is correctly itemised)
- post an additional minus line to contra out the value (as there is nothing to actually pay). This will be for the effective gross value (VAT times 6)
Using the example above the entries should look like this:
Note – If all postings are correct the Import VAT suspense will be zero!
If you need help with this, or with other advice, then please get in touch…