2021 - Northern Ireland Dual VAT & Customs Status
The Exporter Journal
The authoritative International Trade journal for UK exporters & importers large or small.
First published: October-November 2020, Issue (Finance Section)?
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. 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).
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 forwarded 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 restrictions on minimum VAT rates on goods. To report transactions between NI and Irish or other EU businesses, the EU will grant VAT identification numbers to NI businesses.
From a VAT perspective, taxable crossborder goods and services between the EU and UK 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 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.
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, and these measures will apply even if the UK and EU fail to reach their own Free Trade Agreement (FTA) by the end of 2020. (There may be alterations if a UK-EU FTA is finally reached.)
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 forwarded 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 restrictions on minimum VAT rates on goods. To report transactions between NI and Irish or other EU businesses, the EU will grant VAT identification 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.
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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 scrapped. Instead, NI sellers to Irish (or any EU) consumers will be able to use a single VAT return (OneStop-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 table above covers the VAT treatments.
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 an NI resident, then UK VAT is due and should be charged by the GB seller. If the goods though are dispatched to an 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):
Richard Asquith was VP Global Indirect Tax at Avalara at the time this article was originally published, helping businesses understand their compliance obligations as they grow globally before changing roles in October 2021 to become the CEO of VATCalc. Richard qualified as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY. He was part of the European leadership team which won International Tax Review’s 2019 Tax Technology Firm of the Year and is now working with an inspirational team of leading VAT / GST experts and automation innovators, building revolutionary tax tech for the digital age..
From?The Exporter?archives: first published October-November 2020 Issue