Legislation—the Brexit Omnibus Bill 2020—proposes a number of tax measures to deal with Brexit, and one of the measures is the introduction of postponed value added tax (VAT) accounting for imports of goods coming into Ireland.
The UK officially left the EU on 31 January 2020 and entered into a “transition period” during which the UK continues to be treated as if it were an EU Member State. The transition period ends on 31 December 2020, at which time the UK will be regarded as a “third” country for VAT and customs purposes (separate rules apply to Northern Ireland). Goods that are purchased by Irish businesses and transported from Great Britain to Ireland will be regarded as “imports” from 1 January 2021 and will be subject to different VAT and customs rules from those that currently apply.
Irish VAT arises on the importation of goods into Ireland from non-EU or “third” countries. The current position is that, unless a trader operates a deferment account, VAT is payable at the time the goods are imported into and cleared for free circulation in Ireland. This VAT may be recovered through the taxpayer’s Irish VAT return (to the extent that there is an entitlement to VAT recovery); however, this results in a cash-flow funding cost for the Irish business.
If this position were to remain unchanged, there would be a significant increase in the level of VAT cash-flow funding costs incurred by Irish businesses from 1 January 2021 due to the volume of goods acquired from Great Britain.
What does postponed VAT accounting mean?
The proposed measure means that importers of goods into Ireland would not have to make an upfront cash payment of the import VAT. Instead, they would be able to record the import VAT in the VAT return for the VAT period in which the import takes place under the VAT “reverse charge” accounting procedure, in a similar manner that VAT is accounted for on the acquisition of goods into Ireland from other EU Member States.
This would effectively preserve the current VAT position for trading with Great Britain, and would be VAT cash-flow neutral for businesses that are entitled to full VAT recovery.
The measure would not only apply to the import of goods from Great Britain, but would be available to all importers that are VAT-registered in Ireland and are importing goods from any “third” country---thereby providing a cash-flow benefit for Irish businesses that are currently importing goods from countries including the United States, Switzerland, and Norway and from countries in Asia.
The bill provides that eligibility may be subject to certain criteria and conditions and Irish Revenue would be authorized to exclude a person from the scheme if the relevant qualifying conditions are not satisfied.
Businesses importing goods from “third” countries and Great Britain need to determine that their systems would be able to capture such acquisitions and that VAT would be accounted for under the reverse-charge procedure from 1 January 2021. Timely reporting of VAT will be critical for all businesses—and not just those operating with limited or no VAT recovery entitlement.
According to the currently drafted bill, when the procedure is applied at import and VAT is not recorded in the correct VAT return period, then import VAT would be deemed to have been due and payable at the time of import but not paid, which could lead to a VAT underpayment and associated interest and penalties.
Read a November 2020 report prepared by the KPMG member firm in Ireland
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