Businesses making distance sales from EU MSs to NI must register for UK VAT if the value of their distance sales into NI during a calendar year goes over the distance selling threshold. Businesses bringing or receiving goods into Great Britain (GB) or Northern Ireland (NI). VAT will continue to be accounted as it is currently on goods sold between GB and NI.
At 12pm CET on 31 December, the free movement of goods persons, goods, services and capital between the UK and the EU ended. The UK has left the EU Customs Union and Single Market. The EU/UK trade deal (FTA) now regulates the movement of goods between the UK and EU. The EU/UK FTA provides for zero tariffs and zero quotas on all goods provided the rules of origin (RoO) are met. The trade between the EU and the Great Britain (GB) (the UK excluding the Northern Ireland (NI)) is accompanied with customs’ borders, formalities and paperwork including entry and exit declarations after 2020.
Trade with the UK: VAT and customs consequences of Brexit
Special rules for NI
The UK includes NI, England, Scotland and Wales. Great Britain only comprises England, Scotland and Wales. NI means UK excluding Great Britain. Under the Northern Ireland Protocol of the Brexit Withdrawal Agreement, the UK Government agreed a special VAT and customs relationship after 2020 between the EU, Northern Ireland (NI) and the rest of the UK (‘Great Britain’ or ‘GB’). This includes dual free access to both the UK and EU markets for NI.
Trade between EU and NI
The special rules apply for trade in goods with Northern Ireland (NI). What concerns the movements of goods and VAT refunds related to sales of goods, NI is treated as if it were an EU Member State (MS). Transactions involving services are not covered by the special NI Protocol, consequently, transactions in services between EU MS and NI will be treated as transactions between MSs and 'third countries' (non-EU MSs). This basically means that the NI has to be treated for VAT purposes as an EU MS for movements of goods but as a non-EU MS for the services.
Key changes include:
NI will remain within the UK customs union, covered by the UK GATT schedule and benefit from UK trade agreements. However, it will apply the EU Customs Code on goods entering from outside of the EU (including the UK) to Ireland. This involves NI entry ports administering and checking EU customs processes and tariff collections.
The default position is that goods coming into NI from GB are liable for EU tariffs, although this will be rebated by the UK. Only if it can be demonstrated that the final customer for the goods is resident in NI are the goods subject to UK tariffs (if applicable). If EU tariffs (if applicable) are collected at the NI ports, but if the goods eventually are sold to a NI customer, then the importer would be able to apply for a tariff refund on any difference. This would ensure NI businesses would be able to enjoy the benefits of any (future) lower tariff rates agreed by the UK with other countries.
- Special post-Brexit status
Goods shipped between EU and NI pay no tariffs at the border, and there are no customs checks. Certain goods destined for Ireland are exempted entirely from EU tariffs if they are determined as low risk.
- VAT and Excise
NI remains part of the UK VAT and excise areas. However, it continues to be subject to the EU VAT Directive. This includes collecting import VAT at the NI ports on affected goods. Goods moving from NI to EU are still considered as intra-EU (intra-Community) supplies, and therefore not subject to import VAT. Businesses responsible for the intra-Community supply are required to complete Intrastat and EC Sales (for goods) filings.
The NI VAT measures do not apply to services. However, many industrial supplies include a service support element. This provides a complex burden on businesses to understand the services-only component of their supplies so as to apply UK VAT rules and rates.
Movements of goods between GB and NI
HMRC has issued a Policy Paper on 26 October 2020 which sets out how VAT should be accounted for after the end of the transition period at 31 December 2020. HMRC confirms in its letter to UK VAT registered businesses that there is no requirement for a new or separate VAT registration for sales of goods in NI, and both GB and NI sales should continue to be reported on a single UK VAT return.
With a small number of exceptions, HMRC has stated that the system of accounting for VAT (i.e. as domestic UK supplies) continues. Consequently, if a business delivers goods from the GB to NI or vice versa then VAT continues to be accounted on goods sold between GB and NI as it was before the end of the transition period. This means that the seller of the goods uses its GB VAT number and continues to charge its customers VAT and should show this on its invoices. The VAT charged will be accounted for as output VAT on the VAT return in the same box as it was on 2020. Please note that some exceptions apply.
HMRC has published some guidance for UK businesses what declarations need to be made for goods brought or received into GB or NI from 1 January 2021.
From GB to NI
For most goods no exit declarations will need to be made. Guidance on this will be published at a later date.
- an entry summary (safety and security) declaration must be submitted before the goods arrive
- an entry declaration will need to be made when the goods arrive.
From NI to GB
- For most goods no entry declarations will need to be made. Guidance on this will be published at a later date.
A special VAT identification (ID) number with the specific prefix “XI” should be used by businesses in Northern Ireland (NI), so that EU VAT provisions can be properly applied to goods, in line with the special rules as per the NI Protocol applicable on NI.
For goods under the EU rules, as per the NI Protocol:
- goods are located in NI at the time of sale;
- goods supplied in NI by VAT-registered EU businesses; or
- the sale or movement goods from NI to EU or vice versa
then businesses should substitute ‘XI’ country code in their GB VAT number on invoices.
From 1 January 2021, to move goods to or from NI, businesses will need an EORI number that starts with XI. Companies that have an existing GB EORI number can apply for a NI one.
Trade Support Service
Businesses who move goods between Great Britain and Northern Ireland from 1 January 2021, can sign up for the free Trader Support Service.
Practical tips for trade in goods
From 1 January 2021, a VAT number of the customer with the "XI" prefix is required for the B2B deliveries to the Northern Ireland (NI) to qualify as exempt intra-EU supplies.
The threshold for cross-border B2C selling from EU countries to NI (so-called EU "distance sales") is £70,000. Businesses making distance sales from EU MSs to NI must register for UK VAT if the value of their distance sales into NI during a calendar year goes over the distance selling threshold.
Do you have questions or do you need more detailed information? Please do not hesitate to contact us.