When a trader based out of Ireland purchases goods from a non-EU member state, it must pay the VAT at the port of entry unless there is a permitted otherwise. While the VAT 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 purchaser of the goods, and not the seller, records the input and output VAT and the total purchase value subject to VAT. The input and output values are equal and 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.