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For our latest Brexit VAT & Customs commentary, click here.

With the end of the transition period fast approaching, Northern Ireland companies need to step up their Brexit preparations now to ensure they have everything in place to continue operating in the new trading environment.

In particular, businesses need to be aware of the changes around customs and VAT which will come into effect from 1st January 2021 so as to ensure the flow of their goods continues unimpeded. Although clarity is required from the UK Government on some of the operational detail, there is still a lot that businesses can do to prepare.

Companies should make sure they fully understand the movement of goods in their supply chain, the commodity codes which apply to their products and the correct tariff rate. They should consider how they will manage the filling of import declarations and what information they will need to provide and how they will provide it.

It will also be necessary that customs agent responsibilities are clearly set out and understood and that plans are put in place as to whether to outsource customs filing. It is worth considering carrying out customs training for staff – government funding is available to pay for this training. It is vital that businesses understand whether their trade relies on EU Free Trade Agreements and whether rules of origin will be relevant.

The VAT and customs implications for NI businesses will be dependent on the ultimate destination of both imports and exports of goods:

NI goods moving from NI to RoI and the rest of the EU

In this scenario there are no border checks, no customs declarations and no tariffs. NI remains aligned to EU rules, including VAT rules, and must adhere to EU standards in terms of CE Marks, Agricultural and Environmental Protection, Veterinary Controls and Chemical/REACH Legislation. NI goods exported to the European Union, including via container freight, come under the same principles. For NI goods which travel through GB to get to mainland Europe, there will be a requirement for pre-lodgement declarations where goods are transiting.

Goods moving between RoI or the rest of the EU and NI

Similarly, there will be no border checks, no customs declarations and no tariffs for goods originating in RoI or the rest of the EU and moving to NI. However, goods transiting from RoI through NI to access GB may be subject to customs procedures and any applicable tariffs, a point which at the time of writing is yet to be determined.

Goods moving from NI to GB

The UK government has promised “unfettered access” for NI goods moving to GB but the exact definition of such access needs further clarification and the issue of whether goods are “NI qualifying goods” will be critical to this determination. Also, it is not yet clear whether exit summary declarations will apply in respect of the movement of goods from NI to GB. There will, however, be no entry summary declarations and no tariffs in GB. In terms of VAT, the movement of goods between NI and GB will be treated as exports and imports, or at least this is clearly the view set down by the EU.

Goods moving from GB to NI

Under the NI Protocol of the UK’s Withdrawal Agreement with the EU, EU tariffs may apply to the movement of goods to NI from GB if goods are deemed to be “at risk” of moving into the EU, or subject to commercial processing in NI. The tariff will be payable by the business acting as the importer of record of the goods in NI. However, if it can be proved that the goods will stay in NI, a tariff refund may apply. The importer will also need to provide proof the goods are not subject to commercial processing in NI and that they fulfil specific criteria which is to be set out by a Joint Committee of EU and UK representatives. If a UK/EU free trade agreement is negotiated the risk of tariff costs should be eliminated, however, import declarations will still be required.

There will also be new customs formalities and checks for certain goods moving from GB to NI. Goods will be tracked across the Irish Sea by a new HMRC-developed platform known as the Goods Vehicle Movement Service (GVMS) and HMRC aim to finalise its plans on how this will work and how it will link in with import declaration requirements over the coming months.

Goods moving from NI to RoI to GB

Some export routes for NI goods take them through RoI before moving to GB. Under those circumstances, they can move freely from NI to RoI but could be subject to the UK Global Tariff on import into GB. An alternative may be to declare the goods under transit procedures from NI to GB which could allow for tariff free movement of goods in this case, however, this process has not been ratified yet.

Goods moving to NI from rest of the world

The UK Global Tariff will apply to the import of goods directly into NI from rest of world, unless the goods are at risk of being subsequently moved to the EU, in which case it is likely that EU tariffs will apply, although much may depend on whether a free trade agreement is ratified between the EU and UK and what the terms of such agreement are. On imports of goods into Northern Ireland it is expected that postponed VAT accounting will apply, as has been announced for the rest of the UK.

Origin is key

Establishing the origin of goods is essential when navigating the new trading environment, it is not where the goods were shipped from that matters, rather, it is where the goods were wholly obtained or produced and can include the country where the goods have undergone either a substantial or sufficient transformation. However, much will depend on the outcome of current UK/EU negotiations.

Under the NI Protocol, NI origin goods will be covered by UK trade deals but the EU may also have to agree to amend all their trade deals to include NI goods in EU origin. The position as things stands is that NI origin goods will not have access to EU FTAs post transition! This will have significant implications for NI exporters to countries outside the EU, such as the NI dairy industry.

For NI finished products moving into RoI which are then sold to the rest of the world, and vice versa, there are still a number of real concerns that those products will not meet EU origin rule requirements.

The above example highlights that the interconnectedness of supply chains in the all-island economy will be severely challenged unless these issues can be dealt with.

Trade agreements

There are also question marks over how trade agreements will impact imports and exports for NI businesses. For instance, US origin goods which enter through Dublin before ending up in NI which could in principle under the NI Protocol access a UK/US trade deal, throw up a number of challenges. For example, goods placed on the NI market must meet EU product standards and US chlorinated chicken will not meet this requirement. Also, there are likely to be ongoing barriers between the EU and US around tariffs and protectionism.

While certain operational aspects of the NI Protocol are still to be clarified, it is absolutely clear that exporting from and importing to Northern Ireland is going to be totally transformed from the start of 2021, so it will be vital that every business knows how it will impact them and puts in place strategies to overcome any difficulties.

Get in touch

To find out more about how KPMG perspectives and fresh thinking on Brexit can help your business or organisation thrive contact Frankie Devlin via this form.

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