Before looking at the terms of the Withdrawal Agreement Bill it’s worth making a few overarching comments. The first, and currently most important feature of the proposal is that it requires ratification by the UK Parliament (having been approved by the EU at last week’s Summit).
Second, if the agreement is approved by both sides a transition period running until at least 31 December 2020 will take effect (this can be extended for up to two years). However, it should be noted that it is still possible to slip into a no-deal situation at the end of the transition period if no trade agreement has been reached by that stage (and no extension can be agreed). In short, for readers hoping that Brexit would be resolved if this agreement were ratified, I’m afraid the uncertainty is likely to last a while longer.
So, what do we know about the post-transition period? Great Britain will leave the VAT Union and the United Kingdom (including Northern Ireland) will leave the EU Customs Union. This means that goods moving between Great Britain and the EU will, for the first time in 46 years, be regarded as imports and exports. It is possible that the government will permit postponed import VAT accounting (so that import VAT can be paid and reclaimed on VAT returns) and other simplifications will be introduced to reduce the delays anticipated as a result of the estimated 215 million additional import and export declarations that will be required every year. However, to date such measures have been reserved for a no-deal exit.
The treatment of movements between Ireland and Northern Ireland is the subject of a specific protocol to preserve an open border for goods traded on the island and therefore is subject to provisions which will be the focus of this article. Before moving to these provisions, it is worth noting that the UK government does not have any data on the movements between Great Britain and Northern Ireland and much of the detailed VAT changes will be subject to agreement by the UK-EU Joint Committee established for the purpose. Therefore at present there is no way of estimating the impact arising from these protocols.
After the UK’s departure from the EU Customs Union Northern Ireland will be part of the UK Customs Territory. However, goods moving between Northern Ireland and the Republic of Ireland will not be subject of checks at the border. Practically speaking, how will this work?
Goods moving between the Republic of Ireland and Northern Ireland will be subject to the current VAT acquisition and dispatch rules. In effect, for VAT purposes at least, there will be no change in the VAT treatment of these goods (services are subject to different rules). This means that Northern Ireland will remain subject to EU VAT legislation (including European court decisions) but only in relation to the supply of goods. To prevent distortion of competition close to the border the UK has the right to align VAT rates for goods sold in Northern Ireland with the Republic of Ireland’s rates. This could leave Northern Ireland VAT registered businesses with two rates for the same goods; one for sales to customers in Northern Ireland and a second rate for sales to customers located in England, Scotland and Wales.
As Northern Ireland will be subject to the EU Union Customs Code, goods entering Northern Ireland from Great Britain will be subject to customs formalities but not be subject to customs duty; goods arriving from outside Great Britain and the EU (eg imports from the US) may be subject to UK Customs Duty rules. However, to preserve the EU Customs Union if there is a risk that goods entering Northern Ireland will subsequently be moved to the Republic of Ireland then EU Customs Duty will be collected by the UK and remitted to the Republic of Ireland. This risk is measured by a series of factors but we would expect that goods subject to processing in Northern Ireland or higher rates of duty under the EU rules will be considered most at risk.
The position in relation to goods leaving Northern Ireland is less clear. We currently expect that goods leaving Northern Ireland bound for Great Britain will be subject to export procedures for the first time. By contrast, goods leaving Northern Ireland that are not bound for an EU destination or a destination in Great Britain (eg Japan) could be subject to any future trade agreement that the UK may enter into with that country. However, the existing arrangements mean that it is conceivable that such goods may be subject to the EU’s Trade agreement with that country which could provide additional benefits for Northern Ireland businesses over business in Great Britain.
Many businesses have already carried out readiness reviews to prepare themselves for whatever the outcome of the next few days’ debate in Westminster. Those businesses that haven’t should do so as a matter of urgency.