UK clarifies Brexit Northern Ireland ‘XI’ VAT number
- Nov 22, 2020 | Richard Asquith
The UK’s HMRC has issued fresh guidance on VAT transactions between Northern Ireland (NI), the EU and the UK excluding NI (Great Britain or GB). This addresses identifying the correct VAT reporting of transactions as NI will be in the EU and UK VAT regimes under the Brexit Withdrawal Agreement.
The NI Protocol made clear that GB-NI transactions should be treated as imports and exports. However, HRMC is relying on existing flexibilities with the EU VAT rules (Articles 201 and 211 of Directive 2006/112/EC ) to instead treat GB - NI transactions as regular domestic UK VAT transactions – UK output and input VAT due. There remains some disgreement with the EU as it is still considerring the use of 'XU' for invoices to indicate GB.
For NI imports and exports, a Northern Ireland XI EORI number will be required.
For goods under the EU rules, as per the NI Protocol:
- Goods are located in NI at the time of sale;
- Goods supplied in NI by VAT-registered EU businesses; or
- The sale or movement goods from NI to EU
then businesses should substitute ‘XI’ country code in their GB VAT number on invoices so that the transactions can be identified separate from UK VAT transactions. So XI 123456789 - instead of GB 123456789.
There will be no requirement to apply for a new 'XI' VAT number. Businesses with NI postcodes will automatically be assumed to be operating within the terms of the NI Protocol. NI businesses may also use the EU VAT refund scheme.
2021 - Northern Ireland dual VAT & customs status
The UK leaves the EU VAT regime, Customs Union and Single Market on 31 December 2020. This is the end of the Brexit Transition Period following the UK leaving the EU on 31 January 2020. Northern Ireland however will retain a special, dual position within these frameworks - a VAT and customs border in the Irish Sea for goods.
As part of the Brexit Withdrawal Agreement, the UK and EU agreed in October 2019 that Northern Ireland (NI) would take-up a dual status within the EU and UK VAT, customs union and market for goods only. This is contained within the Revised Protocol on Ireland and Northern Ireland (Protocol). The aim is to avoid physical border controls at the Northern Ireland (NI) – Republic of Ireland (Ireland) border.
From a VAT perspective, from 2021, taxable cross-border goods and services being provided between the EU and the UK excluding NI ('Great Britain' or 'GB') will become normal EU to/from a non-EU 'third country'. But the Protocol will create a complex treatment for the VAT on goods moving between Ireland, NI and GB. Goods shipping between NI and GB will now be imports and exports rather than goods moving freely within the UK. This is discussed below. Goods moving in transit between Ireland and the EU via the UK - known as the UK Land Bridge - will have special arrangements to minimise the disruption of existing trade.
The customs requirements are to be clarified . The UK will offer a free Brexit customs declarations Trader Support Service, which will help complete all customs and safety and security declarations. This will only be available for NI businesses moving goods from GB to NI.
NOTE: THE PROTOCOL DOES NOT AFFECT THE VAT RULES FOR SERVICES
Northern Ireland independent of EU-UK FTA deal
This new regime will come into effect on 1 January 2021, unless there is an extension to the UK Brexit Transition Period. The measures will apply even if the UK and EU fail to reach their own Free Trade Agreement (FTA) by the end of 2020.
The Protocol is in place for at least four years from 1 January 2021, subject to periodic review and consent by the NI Assembly.
HMRC administers EU VAT in NI
The UK’s HMRC will be responsible for the administration and collections of EU VAT and excise duties in NI. See list below of applicable EU VAT rules. Any taxes collected will be retained by the UK, and will not be forward to the EU. The Joint Committee established under the Protocol will regularly review this process.
NI supplies of taxable goods may enjoy the same rules and reduced VAT rates in operation in Ireland.This will include, for example, EU limits and restrications on minimum VAT rates on goods.
How will this affect the VAT treatment on goods?
B2B NI – Ireland goods movements
For EU declarations XI prefix for trade with EU (see above). For NI trade with GB. Goods moving between Ireland and NI established traders will continue to be treated as movements across internal EU borders. For B2B, this means they remain intracommunity VAT zero-rated transactions.
B2C NI – Ireland goods sales
B2C sales between NI to Ireland will still be subject to the distance selling threshold rules – but then subject to the VAT of the consumer’s country of residence. Note this changes on 1 July 2021 under the EU e-commerce package when distance selling thresholds are scraped. Instead, NI sellers to Irish (or any EU consumer) will be able to use a single VAT return (One-Stop-Shop, OSS). For the 2021 UK ecommerce VAT reforms, there are special rules on B2C goods held in NI by overseas sellers.
B2B NI – GB goods movements
Any B2B goods moving between NI and GB will be treated as exports and imports for VAT. In headline terms, this means import taxes - VAT and excise duties - are due. HOWEVER: the UK VAT on Northern Ireland to GB VAT interpretation is in variation to this. It has chosen to treat GB to NI as a domestic transaction, using Articles 201 and 211 of the EU VAT Directive to allow it to be flexible, and is prioritising the integrity of the UK's VAT union. This means it is considering its sales VAT as simulating the effect of import VAT rather than as a domestic supply.
The matrix below covers the VAT treatments based on the current EU's view:
B2B border movement
Treatment and reporting (per EU; UK VAT interpretation is in disagreement)
EU to NI
Intra-community dispatch / arrival
Follows current intra-EU procedure. B2B VAT zero-rated. Includes Intrastat and EC Sales Listings declarations at both ends.
NI to GB
|Export from NI||UK: treating as domestic sale so UK VAT (see above). EU view: No VAT due as outside the scope of EU VAT. EU may require export declarations from NI. UK's TSS customs service may help.|
Import into GB
UK view whilst an import, will treat as UK domestic VAT transaction (see above). UK government has indicated no import customs declarations required or help with the new .
GB to NI
Export from GB
|UK: consider domestic sale with UK VAT due. EU: An export from GB to NI. No export declaration.|
Import into NI
EU VAT due but may be deferred via Postponed Accounting in UK VAT return. Any EU duties due*. Import declaration - but help from new UK TSS customs service.
* Subject to UK-EU FTA agreement on duties UK has indicated it will refund import duties to NI/GB businesses
UK Land Bridge movements between NI and EU
Goods being shipped B2B between NI and EU via UK ports and roads currently face no customs or VAT obligations. Over 150,000 truck journeys travel this route each year. After 1 January 2021 this will change as the UK becomes third country. Goods will be subject to VAT and customs. In June 2020, Irish and European Commission officials reached a draft agreement on how to limit the damage when food products and live animals arrive at continental ports from the UK. But the UK side of the Land Bridge is yet to be discussed at the EU negotiations. The UK will be asked for some sort of speedy boarding for Irish-EU freight. But it is difficult to imagine this being granted if there are heavy queues for UK-EU freight.
B2C goods from GB to NI
If the recipient is a NI resident, then UK VAT is due and should be charged by the GB seller. If the goods though are dispatched to a Ireland address and posted via NI, then they are an import. Under current EU rules, they are exempt for VAT if they do not exceed €22 / £15. If above this, then EU import VAT is due by the customer or seller. It is likely that reporting the import VAT by the seller will be the easier option.
The EU plans to withdraw the €22 import VAT threshold in July 2021.
Cross border services between NI, GB and EU are not part of the NI Protocol dual arrangement. Service transactions between NI and EU are treated as any other between the EU and a third country.
EU VAT recovery
NI businesses will also benefit from continuing access to the EU 8th Directive VAT reclaims electronic portal. This will enable them to easily reclaim EU VAT incurred on travel, entertainment, travel, promotion and advertising expenses incurred in any EU member state.
Whereas GB businesses will have to use the burdensome paper-based country-by-country 13 Directive reclaims process after 31 December 2020.
What EU VAT rules will apply in NI
HMRC will be responsible for administering in NI the following EU VAT rules (Annex 3 of the Protocol) :
- EU VAT Directive, covering the rules of VAT compliance and reporting
- 8th VAT Directive, covering EU VAT refund claims
- 13th VAT Directive, covering EU VAT claims by non-EU businesses
- Administrative cooperation with EU states on VAT fraud detection
- VAT and duty exemptions on import of personal goods and third countries
- VAT exemption on certain final imported goods
- Obligations towards Norway on anti-VAT fraud cooperation
- Obligations towards Switzerland on combating fraud
- 2008 general arrangements and administration cooperation on excise duties