When a trader based out of Ireland purchases goods from a non-EU member state, it must pay the VAT at the point of entry unless it is permitted otherwise. While the VAT can be reclaimed later, the long time between paying and reclamation can cause significant cash flow distress to the business. The Postponed VAT Accounting system addresses this problem. Under this system, the goods' purchaser, not the seller, records the input and output VAT and the total purchase value subject to VAT. The input and output values are equal; thus, the trader does not need to pay the VAT upfront. The Postponed VAT Accounting system is similar to the reverse charge system.

Example: 

Aero Source is a trader based in Ireland. It buys 50 Laptops from EcoNexus, an Australia-based computer company €150 each. The total purchase invoice value is €7500. Now, €7500 is the value subject to VAT and it will reflect in the Postponed VAT Accounting section of the VAT returns while at a VAT rate of 21%, €1575 will be displayed on T1(VAT on sales) and T2(VAT on purchases). And, since both T1 and T2 are equal, both T3 and T4 will be zero.

Setting up a Transaction:

Make sure that a non-EU country is selected on the Supplier and also to use a 0% VAT Rate (with notional and goods selected on that VAT Rate) on the transactions in order for them to appear in PA1 on a VAT Return.

Editing the Country on a Supplier:

Open Purchases then click into Suppliers, from there a New Supplier can be set up or an existing one can be opened. Under the General Info tab scroll down to the Country dropdown menu and select the appropriate country for the supplier.

After the Country was set up on the Supplier, the next step is to make sure the VAT Rate is correctly set up. Open Settings and click into VAT Rates, click on the Add button and make sure the RATE remains blank and Goods are selected with the appropriate Notional Rate selected.