As has been well publicised, Brexit has introduced a wide range of changes to the VAT and Customs regimes of Great Britain and Northern Ireland. Businesses are still getting to grips with this, so it was a relief to see that there were no further significant changes announced.
Northern Ireland Protocol
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.
- Domestic Reverse charge on construction services: From 1 March 2021 a new domestic VAT reverse charge must be used for most supplies of building and construction services in the UK, which is a significant change for those involved in the UK construction sector. It applies to standard and reduced-rate VAT services for individuals and businesses registered for UK VAT, which are reported within the Construction Industry Scheme.
- Making Tax Digital: All VAT registered businesses and not just those with a turnover in excess of the VAT registration threshold, will be required to submit VAT returns under the Making Tax Digital requirements from 1 April 2022.
- Licensing in Northern Ireland: With effect from April 2023, the Government will make the renewal of certain licences in Northern Ireland conditional on applicants completing checks that confirm they are appropriately registered for tax, which is consistent with previous reforms in England and Wales and in line with similar provisions being introduced in Scotland.
- COVID-19 support: VAT measures designed to strengthen the Covid-19 support have been covered elsewhere in this publication.
Partner, Indirect Taxes – VAT & Customs
KPMG in Ireland