Brexit, VAT and the Northern Ireland protocol

20 November 2020

Since our July Tax Voice article on Brexit, HMRC has been busy releasing details outlining the UK's changed trading relationship with the EU from 1 January 2021. This article focuses on one of the most recent announcements, released on 26 October, dealing with Great Britain's (GB) trading relationship with Northern Ireland (NI) from 1 January 2021. We also touch on a few other Brexit related matters for which articles, policy papers and/or guidance have been published in the last few months.

The Northern Ireland protocol

The NI protocol was hailed with some fanfare on 27 January 2020, when EU chief negotiator, Michel Barnier, announced that it is, '…a workable system, built to last'. Critically, it means that: there will be no hard trade border between the Republic of Ireland  and NI; the integrity of the EU single market will be maintained; but, NI will remain in the UK customs territory. For VAT purposes it creates quite an odd arrangement: NI will remain in the EU for the purposes of the sale of goods but will be outside the EU in respect of services. 

The protocol prompted a raft of questions from businesses  and advisers on what this will mean in practice, but the subsequent controversy over the UK's Internal Market Bill has distracted from the changes that the protocol will make. HMRC guidance released in October, however, addresses some of the key VAT issues arising from the protocol.

VAT registration

Despite speculation of a separate VAT registration process, HMRC's first confirmation was that, as NI remains in the UK's VAT system, there will be no new VAT registration for businesses established there (including VAT groups comprising GB and NI establishments). UK VAT on all sales (across GB and NI) will be accounted for on the existing nine-box UK VAT return. The only change is that sales within a VAT group which represent a movement of goods from GB to NI will be subject to VAT (more on this below) with the sale of NI-located goods between members of a VAT group subject to VAT unless both members are established in NI.

Buying and selling goods between Great Britain and Northern Ireland

UK VAT will, in most cases, still be due on the sale of goods in the UK (and reported on the UK VAT return in the usual manner) even if it involves a movement of those goods between GB and NI. There are, inevitably exceptions. If the goods are subject to the domestic reverse charge (eg computer chips), the onward supply procedure (eg where goods are imported into GB but forwarded to NI where they are subject to VAT in the EU) or a special customs procedure (eg inward processing relief), the VAT must be accounted for by the customer.

Moving goods to Northern Ireland from Great Britain

Organisations that move their own goods from GB to NI will face new (and somewhat complex) requirements. From 1 January 2021, VAT must be charged on the value of goods moving to NI from GB, with an offsetting VAT recovery if appropriate. So, for example, if a London based business moves computer equipment worth £100,000 to its Belfast branch office, it must account for VAT of £20,000 on its VAT return and then determine whether, and to what extent, this VAT may be reclaimed. For some organisations (particularly those in financial services and not for profit sector), this could introduce some highly complex and challenging issues along with additional VAT costs in some cases.

Other matters related to Northern Ireland

A variety of other matters are alluded to in HMRC's guidance. There are no changes to sales aboard ferries travelling between NI and GB (UK VAT will be due unless the voyage is to another country, in which case such supplies are outside the scope of VAT). EU simplifications (eg triangulation) will only apply to movements of goods involving NI (and not GB) and the VAT margin scheme for second hand goods will not apply to stock purchased in GB but sold in NI (VAT will be due on the selling price).

Other VAT and customs duty Brexit news

A number of other issues have cropped up since July. We cannot cover all of these items in this article, but we note the headlines below to promote further research:

  • Press reports suggest that yacht owners will not face a UK import VAT charge  under returned goods relief provisions  if they bring their vessel back to the UK after Brexit, provided it returns before the end of 2021.
  • Information on how to set up a duty deferment account has been released to  reduce the cashflow impact of customs duties payable from 1 January 2021.
  • A variety of detailed notes have been published on the GB-EU Border Operating Model, including record keeping and declaration requirements. This includes confirmation that Intrastat declarations will be required for imports post-Brexit until 2022 (but this will exclude dispatches of goods to the EU and movements between GB and NI.

For more information please get in touch with Brad Ashton or Phil Munn