Pursuant to the Brexit Withdrawal Agreement, which was signed in January 2020, Northern Ireland (NI), under the NI Protocol, will have a foot in both the EU and the UK. The overall goal is that a Customs border between NI and the Republic of Ireland would not be required.
This will be the position as at 1 January 2021 regardless of whether the EU and UK sign a trade agreement, with the Taxation (Post-transition Period) Bill 2019-21 having its second reading on 9 December 2020.
This article will examine the challenges and opportunities for business in transporting and selling goods involving NI. At the time of writing, we only have Policy Papers issued by the government, but the guidance still needs to be digested and preparations made.
Movement of goods between GB, NI and the EU
One important aspect of Brexit is the Northern Ireland Protocol (the “NI Protocol”). A central tenet of the NI Protocol was that NI would maintain alignment with the EU VAT and Customs Union for goods, but would also remain part of a single market with the UK.
The transit of goods between NI, the EU and GB will result in a number of challenges for businesses, primarily ensuring that the relevant regulations are applied correctly for goods entering and leaving NI. This could result in a more complex administrative burden for these businesses.
It is expected that most services supplied internationally will be unaffected. The implication of the NI Protocol is that only transactions in goods are drawn into compliance with EU VAT rules. NI remains outside the EU for the purposes of services.
Services will continue to have a place of supply and be subject to VAT under the same rules as before, although exceptions must be considered such as the use and enjoyment override rules and the impact of Brexit changes on financial services and any other supplies.
Goods transported between GB and the EU via NI
Where goods are transported from GB to, for example, the Republic of Ireland by way of NI, the accounting of VAT on these goods will be akin to accounting for a direct movement of goods from GB to EU. The seller will account for import VAT and, where required, import duty.
Where the flow of goods is in the opposite direction and the goods are transported from the EU, the Republic of Ireland for example, the seller will account to HMRC for the VAT on importation. There are new rules for accounting for VAT on goods imported into GB
A point of concern is that the EU and the UK VAT authorities will need to identify what goods are “at risk” of entering NI only to be imported into (say) the EU from GB and are therefore subject to import duties (tariffs). A Brexit committee (joint EU and UK) has been set up to determine how goods moving into NI will be determined as “at risk” of passing through. A business will be able to apply, if meeting the relevant requirements, to declare their goods as “not at risk” when entering the NI in order to avoid the additional checks and import duties. In fact this application should be made now, although there will be an easement for applications received until February 2021. There will also be a mechanism to waive import duties for certain transactions caught by these “at risk” rules where the UK does not want import duties to be imposed. Details remain unknown at the time of writing.
There will be restrictions on goods which are transported into NI and processed there while in transit (for example) from GB to the EU. Businesses should continue to watch developments in case there is an opportunity for VAT planning.
Goods transported from GB to NI or NI to GB (and not “at risk”)
The intention is to maintain NI and GB as a single market. The formal position will be that goods are imported from GB to NI and exported from NI to GB. In practice, the UK is seeking to maintain the status quo as much as possible in the VAT relationship between NI and GB. For example, UK VAT will continue to be charged on invoices issued by a supplier where goods are moved from GB to NI, although technically representing VAT accounted for on an import.
There will however be certain anomalies. Where there is a transport of goods between GB and NI from one entity to another in a VAT group, a UK VAT charge will arise where currently there is none.
Goods transported from EU to NI and NI to EU
As with goods moved between GB and NI, the VAT relationship between the EU and NI will essentially remain unaffected by Brexit. For EU VAT purposes, NI will adhere to the same VAT rules as it currently does for the sale and purchase of goods with EU member states, including EC Sales Lists, distance selling and triangulation. The VAT registration number of an NI business trading with EU businesses will be “XI”.
Removing the Customs border between the UK and the EU was always going to result in intricate regulations and increased paperwork. The authorities have done unexpectedly well in removing a Customs border within the island of Ireland, whilst minimising the impact of the Customs border between GB and NI.
There are some increased administrative burdens and detail is still emerging as to how import duties will be waived, but things might well look very much the same as before Brexit for many traders. Until the new rules are fully laid out and implemented in practice however, it is too early to make a final judgement.
All traders can do at this stage is review documents as they are published, make applications where relevant and plan to meet VAT threats not yet specified.