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UK Northern Ireland VAT post Brexit

  • Jun 24, 2020 | Richard Asquith

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.

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 VAT, Customs Union and Single Market. 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 – Republic of Ireland (Ireland) border and jeopardise over 30 years of peace following the 1998 Good Friday Agreement (Belfast Agreement).

From a VAT perspective, taxable cross-border goods and services between the EU and UK will become normal EU to/from non-EU third country. But the Protocol will create a complex treatment for the VAT on goods moving between Ireland, NI and the rest of the UK excluding NI (Great Britain / 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 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.

To report transactions between NI and Irish or other EU businesses, the EU will grant VAT idenficiation numbers to NI businesses

How will this affect the VAT treatment on goods?

B2B NI – Ireland goods movements

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).

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. The matrix below covers the VAT treatments:

B2B border movement

VAT categorisation

Treatment and reporting

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 No VAT due. Excluded from Intrastat. EU export declaration.

 

Import into GB

UK import VAT due, but may be deferred via Postponed Accounting in UK VAT return. Any UK duties due*. Import declarations TBC.

GB to NI

Export from GB

No VAT due. Excluded from Intrastat. 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.

* 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 receipiant 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.

Services unaffected

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

Need help with your UK VAT compliance?



Researching UK VAT legislation is the first step to understanding your VAT compliance needs. Avalara has a range of solutions that can help your business depending on where and how you trade. 

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VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He can be contacted at: richard.asquith@avalara.com. He is part of the European leadership team which won International Tax Review's 2019 Tax Technology Firm of the Year. Richard qualified as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.
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