The Withdrawal Agreement reached in December 2020, alongside the Northern Ireland Protocol, set out the detailed terms of the UK’s exit from the EU as of 1 January 2021.
The striking of a formal deal on the future relationship between the UK and the EU was very much welcomed, but with it came a number of significant impacts for Irish business which we have seen borne out in the first weeks of this year. One such notable area is in the context of VAT and key changes in terms of the treatments to be applied to transactions with mainland UK and Northern Ireland which have implications for businesses in terms of their supply chains, further administration, and resourcing.
As part of this article, we take a snapshot of some of the key VAT changes and practical issues which we know businesses are facing in terms of getting to grips with the changes post 1 January 2021. We advise that these should be considered and evaluated where you have or envisage in the future any business transactions with the UK.
Trading in goods to business customers established in mainland UK
Mainland UK (England, Scotland and Wales) became a ‘third country’ for VAT purposes as of 1 January 2021 by reason of exit from the EU. The implication is that mainland UK is now no different in terms of VAT treatment when compared to transactions with any other country outside of the EU.
Goods sold to UK businesses will now be considered as exports of goods from Ireland. The 0% rate of Irish VAT should continue to apply to such exports, assuming goods are transported to mainland UK and the UK customer is responsible for the goods on point of entry into the UK.
Goods acquired from UK businesses will now be considered as import of goods into Ireland. As a result, a charge to Irish VAT typically arises at the point of entry into Ireland. Such VAT would generally be recoverable by the Irish business if used as part of a taxable business, however it would present a cash flow issue. Simplification measures such as the new Postponed Accounting regime have been introduced to ease this burden, allowing VAT registered importers with an EORI number to effectively postpone such VAT charge to be accounted for as part of the VAT return on a reverse charge basis, which procedure business would have been familiar with in the context of EU acquisitions. Any business who may have a Deferred Payment account in place for Customs and Excise purposes may also continue to use this account for the purposes of imports from the UK as a mechanism to defer VAT payment at point of entry.
Whilst such transactions will no longer be subject to EU VAT reporting requirements, it will be necessary to complete export and import declarations which of themselves are typically more onerous that would have previously been the case in accounting for Intra-Community Supplies. In some cases, businesses may need to seek the support of a Customs Agent to assist in this process should the necessary resources not be available in-house.
In addition, any EU Simplifications which you may have availed of such as Triangulation, Margin Scheme, or Call Off Stock arrangements no longer apply to mainland UK, hence if your business is impacted in any way you should carefully consider the implications in terms of the supply chain and seek appropriate engagement within your supply chains and/or your professional advisers.
From a practical perspective in terms of accounting for VAT, businesses should note the following:
Ensure their accounting systems are in order to record transactions where Postponed Accounting has been applied, as additional reporting within the VAT returns will be required
Their invoices in respect of sale of goods to mainland UK are no longer required to quote customer’s UK VAT registration number on sales invoices. There are no specific obligations under EU/Irish Revenue guidance as to invoicing requirement for exports, however we would suggest that a reference to the fact the sale is an Export of Goods would be useful
They continue to maintain appropriate documentation and evidence to support the export of goods e.g. certificates of shipping, transport documents. The retention of UK VAT number and business details on master file is still relevant.
Trading in goods to business customers established in Northern Ireland
Northern Ireland remains part of the EU Single Market for goods only, hence EU VAT rules will continue to apply to goods but not services. Northern Irish taxpayers will still be part of UK VAT system but there are measures to facilitate Intra-Community supplies of goods from Northern Ireland to the EU.
Hence is essence there are no material changes other than to note those trading in goods in Northern Ireland 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. EU reporting and disclosure requirements in terms of VIES and Intrastat remain as before, as well as the various EU simplifications such as Triangulation, Margin Scheme and Call-Off stock arrangements still apply to the trade in goods between Northern Ireland and the EU. It is important to be aware of any complexities which may arise for goods shipped from mainland UK through Northern Ireland to the Republic of Ireland and vice versa in the context of additional documentation, administration and cost at points of entry/exit.
Sale of goods to private non-VAT registered customers in mainland UK
The previous provisions with regard to the sale of goods to private customers in mainland UK Business to Consumer (‘B2C’) no longer apply. As a result, this may give rise to an obligation to for certain business register for VAT in the UK by reason of UK VAT arising on import to the UK i.e. Irish supplier required to declare on entry into the UK with related Import VAT arising. The recovery of any such UK VAT on Import should be possible via the UK VAT return once registered, and the onward sale to the UK private customers within the UK should be accounted for at the relevant rate of UK VAT, such VAT to be returned to HMRC. This is an onerous additional obligation for many businesses.
It should be noted that for any cases where sales are isolated to certain items under £135 sold via Online Marketplace from Ireland to mainland UK (e.g. Amazon, eBay), in such cases the Online Marketplace may be responsible for UK VAT arising under specific rules which have come into force in the UK in respect of such marketplaces. Further broader changes at an EU level in the context of Distance Selling are to come into effect later in the year from 1 July 2021, which will be the subject to a separate update in due course.
Supply of services to mainland UK and Northern Ireland
It is notable that mainland UK and Northern Ireland will be subject to the same treatment in the context of services.
In the case of Business to Business (‘B2B’) services, the position largely remains the same in that zero rate of VAT still applies in respect of B2B supply of services. EU reporting obligations no longer apply and the requirements to retain appropriate documentation and evidence to support that fact that you are engaging with a business customer based outside of the EU will still apply. One notable exception to be aware of is that supplies of certain services to customers based outside of the EU but which are ‘used and enjoyed’ in Ireland can give rise to Irish VAT implications. One such example is the leasing of say a commercial vehicle to a UK or Northern Irish entity which is used in Ireland. Any such businesses will need to consider if Irish VAT may now be due in respect of such supplies to UK or Northern Irish customers.
The key fundamental change is with regard to the supply of services to private non-VAT registered persons in the UK Business to Consumer (‘B2C’). Irish VAT should apply at the rate of 0% on the supply of certain services (e.g. consultancy, legal, accounting) to non-business customers, whereas such services were liable to Irish VAT prior to Brexit. This is of course unless an exception under the ‘use and enjoyment’ provisions applies.
The VAT treatment of B2C supplies of electronically supplied services, telecommunications services and broadcasting services have now also fundamentally changed. The Mini One Stop Shop (‘MOSS’) scheme, which eased the administrative burdens of VAT registrations being required in various EU countries, now no longer applies in respect of any UK VAT to be charged on such B2C supplies of electronic services to UK consumers. As a result, any businesses engaged in such supplies may need to VAT register in the UK in order to account for the UK VAT due in respect of such supplies.
To discuss the above in further detail, please contact us