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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).

Goods trade: Ireland/Northern Ireland

VAT headlines

Northern Ireland will remain part of the UK VAT area but the EU VAT rules concerning goods will continue to apply in Northern Ireland.

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.

Customs headlines

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.

There will be no requirement to file customs declarations to record the movement of goods between Ireland and Northern Ireland.

Goods trade: Ireland/Great Britain

VAT headlines

Sales of goods from Ireland to Great Britain should be treated as exports with no Irish VAT chargeable.

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 implemented postponed VAT accounting on imports (“PIVA”) by approved 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 has introduced 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 headlines

From 11pm 31 December 2020, customs controls apply to the movement of goods between Ireland and Great Britain. As a result, export declarations need to be filed for goods exported from Ireland to GB and import declarations and a potential payment of tariffs will arise for goods imported into Ireland from GB.

Import and export declarations need to be filed in respect of trade between Ireland and Great Britain notwithstanding a free trade agreement has been reached. The agreement does not remove many of the obstacles to frictionless trade associated with Brexit such as customs paperwork and regulatory checks.

That said, the UK government will apply import controls for EU goods on a phased basis as follows:

  • Customs import declarations and payment of tariffs can be deferred on standard goods “covering everything from clothes to electronics” until 1 July 2021.
  • There will be checks on and declarations required for controlled goods such as alcohol and tobacco.
  • High risk live animals and plants will not be physically checked at point of import but instead at the point of destination or other approved premises. From April 2021, all products of animal origin and regulated plants and plant products will require pre-notification and health documentation.
  • Full import controls will be applied from July 2021 at which point normal customs declarations and payment of tariffs will be required at import.

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 in particular to assist manage the customs process for groupage loads efficiently and applies for transit movements as well as imports and exports.   

 The UK’s Global Tariff Schedule will apply to imports of goods from the UK into GB from 1 January 2021 unless the goods qualify for EU origin under the agreement (see the following links for further information on the Rules of Origin).

Goods trade: Northern Ireland/Great Britain

VAT headlines

The UK published a VAT Policy Paper (last updated on 12 January 2021) 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 has also been updated to say that the margin scheme for second hand vehicles has been reinstated in NI where those second hand vehicles have been brought into NI from GB. It now says that VAT can be applied on the margin which is good news. Although at this stage this is an interim solution, a long term derogation has been requested by the UK to the EU Commission so that the margin scheme for motor vehicles can continue in the same way as the rest of the UK. This is a very important issue and without the long term derogation it would be very detrimental to the second hand car industry in particular that rely on the margin scheme, as well as potentially increasing prices for the consumer.

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

Customs headlines

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 applies from 1 January 2021, that aims 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 establishment ” test for businesses with legitimate business operations in NI.

The EU and UK 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,  new customs formalities and checks are now in place from 1 January 2021.

HMRC have developed a new IT platform to track the movement of goods across the Irish Sea and deal with certain customs procedures. The system is known as the “Goods Vehicle Movement Service” (GVMS) and further details can be found on the HMRC website.

HMRC have also set out details regarding the new free to use Trader Support Service (TSS), which has now been operational since 1 January 2021 to assist businesses with customs import declarations and safety and security declarations and it also has been providing on-going 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:

  • They will not be subject to commercial processing in Northern Ireland; and
  • The goods fulfil criteria to be established by a Joint Committee, made up of representatives of the United Kingdom and the EU.

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. This also includes some details on how the EU-UK TCA and specific rules of origin will apply and when preference may be claimed when goods move from GB into NI.

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.

 

Goods trade: Northern Ireland/other EU 26 Member States

VAT headlines

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.

Customs headlines

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.

Goods trade: Northern Ireland/rest of the world (ex Ireland and Great Britain)

VAT headlines

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. 

Customs headlines

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 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.

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If you have any queries on how Brexit will affect your business, please get in touch with our dedicated Brexit Response Team.

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