What does section 38 of the Value Added Tax Act 1994 do?

Section 38 gives HMRC the power to make regulations allowing VAT-registered businesses to take delivery of imported goods without paying VAT at the border. Instead, the import VAT is accounted for on the business's regular VAT return alongside output VAT on its own supplies, improving cash flow for importing businesses.

What is postponed VAT accounting for imports under United Kingdom law?

Postponed VAT accounting, enabled by section 38 regulations, allows a VAT-registered business to record import VAT as both output tax and input tax on the same VAT return. This largely neutralises the cash flow impact because the business does not need to fund VAT payments upfront at the border and await repayment.

Who qualifies for import VAT deferral under section 38 VATA 1994?

Only VAT-registered taxable persons importing goods in the course or furtherance of their business may qualify. HMRC retains authority to impose conditions or restrictions to protect the revenue, meaning not every importing business will necessarily be eligible and specific regulatory requirements may need to be met.

How does section 38 affect a business's VAT return for imported goods?

Under section 38 regulations, the import VAT appears on the VAT return as an output tax liability. Where the goods are used for taxable supplies, the same amount is claimed as input tax on the same return. The net effect is typically nil, eliminating the need to fund import VAT in advance.

Value Added Tax Act 1994 section 38

Importation of goods by taxable persons

Section 38 deals with the power of HMRC to make regulations allowing VAT-registered businesses to receive imported goods without paying import VAT at the point of entry, and instead account for it through their normal VAT return.

HMRC may create regulations that allow taxable persons importing goods for business purposes to take delivery without paying VAT at the border.
The import VAT is not waived but is instead accounted for on the business's regular VAT return alongside VAT on its supplies of goods or services.
HMRC may impose conditions or restrictions on this arrangement to protect the revenue.
This mechanism applies only where the importation is made in the course or furtherance of a business carried on by the taxable person.

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