We have set out below our analysis of the key VAT & Customs changes for businesses operating on the island of Ireland (both North and South).
The current VAT treatment of sales of goods between Ireland and Northern Ireland will continue to apply. Northern Ireland businesses will have an XI identification number which will enable them to be linked into the EU VAT system when filing INTRASTAT and VIES/EC Sales reports. This number should also be used by Irish businesses selling and dispatching goods to NI registered customers.
The UK can opt to apply reduced rates of VAT and exemptions that apply in Ireland to goods sold in Northern Ireland. How these optional measures could apply in practice in Northern Ireland remains to be clarified.
Northern Ireland will remain part of the customs territory of the United Kingdom but EU Customs rules concerning goods shall apply in Northern Ireland.
Northern Ireland will also remain aligned to a limited set of rules related to the EU customs code and the EU’s Single Market in order to avoid a hard border on the island of Ireland.
The terms of the revised NI Protocol mean an all-Ireland economy is preserved with no Tariffs, customs controls or border checks applied to the trade in goods between Ireland and Northern Ireland allowing for frictionless trade North/South. The terms of any trade agreement between the EU and the UK and the specific rules of origin for goods that apply will be important for the continuance and growth of the all-Ireland economy. For example, the extent to which non-NI originating raw materials can continue to be used in finished product sold in Ireland and the wider EU will be critical.
There will be no requirement to file customs declarations to record the movement of goods between Ireland and Northern Ireland.
The same rules should apply to the sale of goods from Great Britain to Ireland with no UK VAT chargeable.
Import VAT will arise on the importation of goods into Ireland from Great Britain. Ireland has legislated to implement postponed VAT accounting on imports (“PIVA”) by persons who are registered for VAT and Customs and Excise in Ireland. Where a business opts to apply PIVA, the mechanism eliminates the VAT cash flow cost of imports resulting in a significant VAT cash flow benefit for traders. Applicants for VAT registration made after 31 December 2020 will need to separately request authorisation in order to be able to use PIVA.
A similar position will apply in respect of imports of goods into Great Britain from Ireland which will attract import VAT. Like Ireland, the UK will introduce postponed VAT accounting in respect of all imports into the UK from both EU and non-EU countries from 1 January 2021 for businesses that are VAT registered in the UK. During 2021, the UK also requires INTRASTAT Arrivals returns to be filed on imports of goods from the EU.
Customs controls will apply to the movement of goods between Ireland and Great Britain from 11pm 31 December 2020. As a result, export declarations will need to be filed for goods exported from Ireland to GB and import declarations and payment of tariffs will arise for goods imported into Ireland from GB.
Import and export declarations will need to be filed in respect of trade between Ireland and Great Britain after the Transition Period, regardless of whether a free trade agreement is reached or not. A free trade agreement will not remove many of the obstacles to frictionless trade associated with Brexit such as customs paperwork and potential regulatory checks.
That said, the UK government will apply import controls for EU goods on a phased basis from 11pm 31 December 2021 as follows:
It is important to note that the EU has not introduced reciprocal measures and therefore the UK approach does not alter EU customs control procedures.
The Revenue Commissioners have introduced a Customs Roll-On Roll-Off Service whereby a Pre-Boarding Notification (“PBN”) recording the details of customs declarations for all goods carried on a vehicle or truck must be submitted in advance of arriving at the port of departure in either Ireland or the UK. The system is designed to facilitate the efficient flow of traffic through Irish ports by specifying whether the vehicle can directly exit the port or whether the goods need to be brought to customs for checking.
As a free trade agreement has not been reached with the EU, the UK’s Global Tariff Schedule will apply to imports of EU goods into GB from 1 January 2021 (see page 17 for further information on the UK Global Tariff).
The UK published a VAT Policy Paper (last updated on 7 December 2020) setting out how it will operate VAT in respect of trade in goods between Great Britain and Northern Ireland. NI businesses will continue to submit one UK VAT return and have one UK VAT registration number. The UK are aiming to apply the VAT rules broadly as they do now in that VAT will continue to be charged in respect of both B2B and B2C sales by the supplier, as domestic UK supplies, even though there is a recognition that supplies of goods between Great Britain and Northern Ireland (and vice versa) are exports and imports for VAT purposes after the Transition Period ends. The Policy Paper sets out a number of exceptions to these rules, including where goods move under a customs special procedure, where the domestic reverse charge applies and where the onward supply of goods provisions are used. In these cases, the importer/purchaser of the goods will have the VAT reporting responsibility.
When a UK VAT registered business moves its own goods from Great Britain into Northern Ireland it will have to account for output tax as if it had sold the goods to a third party. If it intends to use the goods solely to make taxable supplies, then it can claim the VAT as input tax subject to the normal recovery rule including partial exemption. The movement of own goods the other way from Northern Ireland to Great Britain does not have the same requirement to account for output tax unless an actual supply takes place.
UK VAT grouping will still be available to Northern Ireland businesses. Normally supplies between VAT group members are disregarded and no VAT charge arises. However, VAT groups will be required to account for VAT and reclaim it (subject to the normal recovery rules) where; a) goods are supplied by one group member to another and the goods move from GB to NI and b) supplies are made of goods located in NI at the time of supply, unless the supply is between group members that both have establishments in NI.
The Policy Paper also says that businesses that move goods between NI and non-EU countries, make a customs declaration (including for GB to NI goods movements), or get a customs decision in Northern Ireland, will need to get an EORI number with the prefix XI to report the movement of these goods. For NI businesses that are already UK VAT registered, HMRC have said they will automatically issue the XI EORI number to them by mid-December (or the business had the option to make an application during December).
The Policy Paper also says that the margin scheme will no longer apply to supplies of second-hand goods in NI where those goods have been brought into NI from GB. It says that VAT will be chargeable on the full selling price. This change could be very detrimental to certain business sectors that rely on the margin scheme, as well as potentially increasing prices for the consumer. We are aware that there are on-going discussions on this issue at UK Government and EU Commission level.
It is important to note that the VAT rules relating to services is not covered by the Protocol and as such Northern Ireland will follow all the normal UK VAT rules for services. This will also give rise to some changes in VAT treatment in respect B2C supplies of services and “use and enjoyment” rules between the UK (including NI) and ROI. A further analysis of the VAT changes relating to NI in respect of goods and services can be accessed here.
As NI will be part of the UK Customs area there generally should be no tariffs on goods moving from NI to GB and unfettered access has been promised by the UK Government. The legislation to enact this is included in the Customs (Northern Ireland) (EU Exit) Regulations 2020 which forms part of the overall Taxation (Post-Transition Period) Act and these have now received Royal Assent and will become legally effective from 1 January 2021. Also included in the Act is anti-avoidance legislation to prevent traders re-routing goods through NI simply to avoid tariffs and other customs requirements and this will also be in place by 1 January 2021. However, if moving goods via NI is already a normal commercial route used by businesses, including ROI businesses, they should be able to continue to use the NI route into GB to obtain unfettered access during the Phase 1 period.
The above legislation sets out a broad definition that the UK Government intend to apply during what is referred to as a phase 1 implementation period which is expected to last for the first half of 2021. During this period, UK Government have said there should not be much change in respect of which goods will continue to be able to move into GB from NI unfettered. This should mean that goods that are in free circulation and originating in the EU (including ROI), that currently move through NI and into GB should be able to continue to do so in an unfettered way, meaning no tariffs and limited checks and controls. The UK Government have, as noted above, introduced anti-avoidance measures that will apply from 1 January 2021, that aim to combat deliberate re-routing of supplies into GB via NI solely to avoid UK tariffs and customs procedures. It is the intention of UK Government to set out a long-term framework of rules which would apply from the second half of 2021 onwards and this will involve stricter rules around who can qualify for unfettered access into GB and the goods that will be deemed to be Qualifying Northern Ireland Goods. This is likely to involve a “qualifying NI trader” test for businesses with legitimate business operations in NI.
The EU and UK have now agreed as part of the formal decisions reached on 17 December that exit summary declarations will not be required in most cases in respect of the movement of goods from Northern Ireland to Great Britain. There will be a requirement in limited circumstances for exit summary declarations and other pre-lodgement requirements for goods moving from NI to GB, for example, where goods are moving under special customs procedures, including transiting from NI through GB and onto the EU and also in respect of goods that are classed as high risk.
In respect of goods moving from GB to NI, it has been confirmed that there will need to be new customs formalities and checks.
HMRC have been developing a new IT platform to track the movement of goods across the Irish Sea and deal with certain customs procedures. The system will be known as the “Goods Vehicle Movement Service” (GVMS) and further details are awaited regarding the completion of trialling.
HMRC have also set out details regarding the new free to use Trader Support Service (TSS), which recently started providing training and education webinars and information and will for a period of at least 2 years provide support for businesses to submit declarations in respect of movements of goods from GB to NI and also for imports from rest of world into NI. This will be available to both NI and GB businesses that are registered for the TSS and we would encourage businesses that have not done so to register as soon as possible here.
EU Tariffs may apply to goods brought into Northern Ireland from Great Britain. The Tariffs will apply if there is a risk that the goods will subsequently be moved to the EU. If the goods are not at risk of movement to the EU, then no tariffs should apply.
The NI Protocol says that goods will be at risk of subsequently being moved to the EU unless it can be established that:
If goods can be proven to stay in Northern Ireland, then there are measures to allow for exemptions, or a potential reimbursement of duties paid. The Joint Committee set up under the Protocol agreed on the 17th December, as part of a series of formal decisions, the framework of rules on how the goods at risk issue will be operated. See our detailed analysis on the “at risk” goods issue in our commentary here on the application of the NI Protocol.
Businesses may also be eligible to claim a waiver for duty on goods brought into NI from GB which might otherwise incur “at risk” tariffs, if the business has not exceeded the state aid allowances for that sector. See the recently published guidance to see whether you are eligible for a waiver.
Where the UK agrees trade agreements with non-EU countries (as it has already done so with a number of countries, including Canada, Japan, Iceland, Norway, Switzerland), it may be open for Northern Ireland to be part of those agreements.
The current VAT treatment of sales of goods between Northern Ireland and the other EU 26 Member States will continue to apply. Northern Ireland businesses will be required to file INTRASTAT and VIES reporting in respect of EU supplies and will use an XI prefix before their VAT registration number to denote that the goods are being supplied from Northern Ireland. Likewise, EU suppliers of goods to Northern Ireland business customers will be required to use the XI customer VAT number for zero-rating intra-community supplies.EU suppliers must also record these supplies for INTRASTAT and VIES reporting.
As with trade between Ireland and Northern Ireland, the current trading rules between Northern Ireland and the EU should continue with no tariffs and no declarations required on trade between Northern Ireland and the rest of the EU.
Broadly the same VAT treatment applying to imports of goods currently into Northern Ireland from third countries should continue to apply. It has been confirmed that imports into and exports from Northern Ireland involving third countries will require the use of an XI EORI number on the import and export declarations. It has also been confirmed that postponed import VAT accounting will be introduced for these imports into Northern Ireland in the same way that it will apply to the rest of the UK.
UK Tariffs under the UK’s Global Tariff Schedule will apply to the import of goods directly into Northern Ireland unless the goods are at risk of being subsequently moved to the EU in which case it is understood EU tariff rates will apply. See our detailed analysis on the “at risk” goods issue in our commentary here on the application of the NI Protocol.
As things currently stand, Northern Ireland will not have access to EU FTAs that currently exist with rest of world countries and this is not provided for under the Protocol. Discussions on the issue are on-going and if some agreement, even on a temporary basis cannot be reached to continue this access, this will negatively impact on those businesses both in Northern Ireland and the Republic of Ireland that have integrated supply chains, using each other’s raw materials to produce finished products that are exported to third countries with which the EU has an FTA.
Whilst NI-produced goods may have the same access under UK FTAs to other markets as GB produced goods, there are still a lot of unknowns on how this will work in practice.
If you have any queries on how Brexit will affect your business, please get in touch with our dedicated Brexit response team.