The Northern Ireland Protocol presents some unique challenges, not least to the UK’s VAT system. The following is the second part of an Insight that deals with this topic under 5 headings:
A Cross-border supplies of services.
B Exports of goods from Great Britain (“GB”) to the rest of the world, apart from Northern Ireland (“NI”).
C Imports of goods into GB from the rest of the world, apart from NI.
D Movements of goods between GB and NI.
Part 1 provides an introduction and deals with A – C above. This Part addresses D and E.
D Movements of goods between GB and NI
Under Article 8 of the Protocol, a large number of specified EU VAT provisions “apply to and in the UK in respect of” NI. At the same time, the UK authorities continue to be responsible for the management of VAT in NI, and NI revenues raised from VAT are UK and not EU revenues. Against this background, it is unsurprising that HMRC did not issue any meaningful post-Brexit VAT advice for NI businesses prior to 26 October 2020. All the UK Government had previously offered NI businesses was the Trader Support Service and the grandly named NI Customs & Trade Academy. Even now, with the political turmoil and uncertainty surrounding the operation of the Protocol, the guidance published on 26 October needs to be treated with extra special caution. That being said, how does HMRC think VAT is going to work in relation to NI from the start of next year? The main points are:
- There will only be one UK VAT register:
This is partly a statement of fact. It also sounds like a rebuff to the proposal by the EU Commission that NI businesses should have a special identifying number for VAT purposes from 1 January 2021. HMRC has, however, said elsewhere that businesses that either move goods between NI and non-EU countries (does that include GB?), make a customs declaration or get a customs decision in NI, will need to get an EORI number with the prefix XI. To get such an EORI number, it is necessary to have an EORI number that starts with GB already.
- VAT will be charged on all intra-UK supplies of goods (and services):
In other words, no change. VAT-registered suppliers throughout the UK will continue to charge VAT at the relevant rate on all taxable supplies made in the UK and VAT-registered customers will claim the VAT charged as input tax, subject to “normal rules”. The guidance points out that this does not, and will not, apply in the case of goods subject to the domestic reverse charge or where a special customs regime is in operation.
- Own goods:
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 rules including partial exemption.
This is similar to the rules generally applicable when a VAT-registered business in an EU member state moves its own stock to another member state. For example, if a French business moves its own stock to Germany it must normally account for VAT on a deemed supply, unless it has its own VAT registration number in Germany. In that case, it uses its own German VAT number to exempt the supply and accounts for acquisition VAT in Germany.
The rules for movements of own goods are extended to group registrations. Eligible taxable persons established in GB or NI will continue to be able to apply to form or join VAT groups. Generally intra-group transactions will continue to be disregarded for VAT purposes. However, this will not be the case and groups will have to account for VAT and reclaim it (subject to the “normal rules”) where:
(a) Goods are “supplied” by one group member to another and move from GB to NI.
(b) “Supplies” are made of goods located in NI at the time of supply, unless both members are established or have a fixed establishment in NI.
As the legislation underlying these rules is probably a long way from being published, I shall not try to think of real-life examples to illustrate these rather bizarre rules. I think HMRC was wearing its anti-avoidance cap when drafting this guidance and reflecting the naivete of its political masters with regard to the land border in Ireland. Making VAT work under the NI Protocol will take more than refinements to the group registration rules.
- Intra-EU simplifications:
Unsurprisingly, intra-EU simplifications, such as triangulation, will not be available for movements of goods involving GB. However, the guidance says that these simplifications would be “available for movements of goods involving EU member states and NI or where the intermediary is identified as moving goods in, from, or to, NI”.
This is intriguing, to say the least. We have too little information at this point to draw many conclusions. But it would sound as if there may be distinct advantages to UK businesses that supply goods to EU businesses in holding the relevant stock in NI.
HMRC has said it will require UK businesses to continue to make supplementary intrastat declarations for the calendar year 2021 if they already do so or of they exceed the relevant thresholds in 2021 in respect of the following:
- Goods imported into GB from the EU. This obligation will end on 31 December 2021.
- Goods imported into NI from the EU. This obligation will continue for the duration of the NI Protocol, which is set for a minimum of 4 years.
- Goods exported to the EU from NI. This obligation is also set to continue for the duration of the NI Protocol.
The relevant thresholds are £1.5M for arrivals (into GB and NI) and £250,000 for dispatches.