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Northern Ireland...
9 December 2020
8 mins read
The VAT rules for businesses in Northern Ireland and for businesses that trade with Northern Ireland will change from 1 January 2021, write Frankie Devlin and Jennifer Upton of our VAT team.
Most of the changes will arise in respect of trade in goods, as a result of the operation of the NI Protocol. However, there will also be some VAT changes in respect of trading in services as a result of the UK exiting the EU. The new VAT rules that will apply to trade in goods relating to Northern Ireland will be set out in new VAT legislation and further guidance from HMRC.
These changes will require businesses to consider the impact of the Transition Period ending on business flows, systems and processes. This may require businesses to amend existing trading incoterms, as well as require changes to invoicing, VAT logic and tax codes in ERP/finance systems to capture the VAT changes that will undoubtedly arise.
Under the terms of the Northern Ireland Protocol, Northern Ireland maintains alignment with the EU VAT rules for goods, but not for services. However, Northern Ireland is, and will remain, part of the UK’s VAT system. NI businesses will continue to submit one UK VAT return and have one UK VAT registration number.
We summarise the key changes below but do note that other changes will apply that are not covered here.
1. Trading goods between Northern Ireland and Great Britain
From 1 January 2021, for supplies of goods between NI and GB, the way VAT will be reported will broadly continue to apply as it does now. VAT will be charged as if they are domestic UK supplies, even though there is a recognition that supplies of goods between GB and NI (and vice versa) are exports and imports for VAT purposes after the Transition Period ends. There will be a number of exceptions to these rules, including where goods move under a customs special procedure, where the domestic reverse charge applies, where the onward supply of goods provisions are used and where goods are sold by an overseas seller through an online marketplace. In these cases, the importer/purchaser of the goods will have the VAT reporting responsibility.
When a UK VAT registered business moves its own goods from GB into NI it will have to account for output tax as if it had sold the goods to a third party. If it intends to use the goods solely to make taxable supplies, then it can claim the VAT as input tax subject to the normal recovery rules including partial exemption. The movement of own goods the other way from NI to GB does not have the same requirement to account for output tax.
UK VAT grouping will still be available to Northern Ireland businesses. Normally supplies between VAT group members are disregarded and no VAT charge arises. However, VAT groups will be required to account for VAT and reclaim it (subject to the normal recovery rules) where: a) goods are supplied by one group member to another and the goods move from GB to NI; and b) supplies are made of goods located in NI at the time of supply, unless the supply is between group members that both have establishments in NI.
The margin scheme will no longer apply to supplies of second-hand goods in NI where those goods have been brought into NI from GB and VAT will be chargeable on the full selling price. This change could be very detrimental to certain business sectors that rely on the margin scheme, as well as potentially increasing prices for the consumer.
2. Trading goods between Northern Ireland and Ireland
The terms of the Ireland/Northern Ireland Protocol require that Northern Ireland maintains alignment with the EU VAT rules for goods (but not services).
Therefore, there will be no change to the current VAT rules in respect of goods traded between Ireland and NI with the exception that NI businesses and those trading in goods in NI will be required to use an “XI” prefix in front of their VAT registration number rather than the “GB” prefix when trading with EU suppliers and customers.
Note complex rules will apply to goods shipped from GB through NI to ROI and from ROI through NI to GB. This may require the use of procedures such as onward supply relief, or customs transit, to simplify the VAT implications, however, this will have to be considered on a case by case basis. The incoterms and the time at which ownership transfers are also likely to become an important factors in determining the VAT treatment in these cases.
