With effect from 1 January 2021, significant VAT changes now apply to Northern Ireland businesses due to the Northern Ireland Protocol and the impact this has for supplies of goods. In addition to this, with the UK leaving the EU, there are also significant changes for VAT on services across the UK. Two announcements in the Budget demonstrate the potential for gradual divergence away from EU rules and illustrate the challenges that businesses will face in maintaining compliance with local and EU rules.
- Import of Steel into Northern Ireland: Special measures on the import of steel into Northern Ireland apply from 1 January 2021, which enable businesses who import steel which originates from countries outside of the EU and the UK into Northern Ireland, to access the UK tariff, including tariff rate quotas or an equivalent relief provided the equivalent EU tariff rate quota is open. Such imports of steel into Northern Ireland will not be subject to the EU’s safeguard tariff.
- Second-Hand margin scheme for cars: The second-hand margin scheme continues to apply to the sale of used cars by car dealers in Northern Ireland where they have sourced them from Great Britain, which is reversal of a previous announcement. This applies to all used car sales in Northern Ireland from 1 January 2021, resulting in no change from the original treatment. Under the second-hand margin scheme, VAT is only due on the profit margin, rather than the full sales price. As the UK Government acted unilaterally in bringing in this change and it is contrary to EU VAT rules, they have asked for a derogation to apply this treatment. However, it is not yet clear if the EU will agree to this derogation. The Irish Revenue have recently indicated that they will seek to apply VAT and any applicable tariffs on the full value of cars brought into the Republic of Ireland from Northern Ireland.