The NI Protocol becomes legally effective from 1 January 2021 irrespective of whether an FTA is agreed or not. Set out below are our comments on the main issues that remain outstanding in relation to the NI Protocol.
- For NI businesses and businesses dealing with NI based customers and suppliers, there are very significant details yet to be agreed between the EU and the UK that will affect the supply chain of goods into and out of Northern Ireland and the systems and processes they need to put in place.
- The EU and UK will want appropriate checks and controls in place before the end of the Transition Period to make sure Northern Ireland is not capable of becoming a back door into their respective jurisdictions, however, there are clearly differences in how the parties think this should be achieved. A recently published UK Command Paper on the NI Protocol indicates that NI businesses will have unfettered access to sell their goods into the GB market, however, it doesn’t detail how this will apply i.e., does it only apply to NI qualifying goods and if so how are these to be defined? Whilst the UK Command Paper accepts that customs declarations will be required on imports of goods from GB into NI, it indicates that this can be dealt with through new electronic import declarations and no new customs infrastructure will be required.
- Recent indications from HMRC is that they are working on the new IT platform that will be used to track movements of goods across the Irish Sea. We understand the system will be known as the “Goods Vehicle Movement Service” (GVMS) and will be trialed in the next few months. It is unclear if this will operate alongside HMRC’s existing CHIEF and CDS customs declaration systems or whether GVMS will also be used to record customs declarations. We expect further details on these developments over the coming weeks.
- As the NI Protocol only covers goods but not services, this means that EU VAT rules will apply to goods but UK VAT rules will apply to services in respect of Northern Ireland.
- The EU have indicated in a technical paper published in April 2020 that supplies of goods between NI and GB are to be treated as exports and imports for VAT purposes. Whilst the UK Government have yet to comment on whether they agree with this interpretation regarding exports and imports in respect of VAT, this issue needs to be made clear for Northern Ireland businesses that will be required to operate any changes to the VAT system from 1 January 2021.
- Whilst a comprehensive FTA would simplify many aspects of implementing the NI Protocol, the systems and processes needed to operationalise the NI Protocol will need to be put in place and appropriate UK Government support will need to be provided to Northern Ireland businesses to enable them to understand and prepare for these changes in advance of the 1 January 2021 implementation date.
- All of this is creating significant concerns for business in Northern Ireland. KPMG have been directly involved in the NI Business Brexit Working Group (NIBBWG) which produced a very detailed paper on 29 May 2020 detailing the myriad of issues and questions that have yet to be resolved across a range of key areas including Customs, VAT and Labour supply. It raises significant concerns on behalf of businesses in NI and makes the strong case for mitigation, derogations and compensation arrangements to be put in place if NI businesses are to be able to navigate the transition. This paper is being reviewed at both UK Government and EU Commission level which should result in further engagement with the NIBBWG.
- Click on the link here to read the document produced by the NIBBWG.