• VAT Implications

VAT Accounting Under NI Protocol

On 26 October 2020, HMRC issued a policy paper setting out the new rules for accounting for VAT on goods moving between Great Britain [“GB”] and Northern Ireland [“NI”] from 1 January 2021 (post Brexit).

Under this policy paper, HMRC confirmed that:

  • UK VAT will continue to be chargeable in relation to most supplies of goods between GB and NI, with VAT continuing to be accounted for on transactions as it is presently (with the exception of goods declared to a special customs procedure, goods subject to the domestic reverse charge or goods subject to an ‘Onward Supply’ procedure).
  • VAT will be due on the movement of a business’ own goods from GB to NI. For fully taxable businesses, this movement of goods should be tax neutral, however, for partially exempt businesses, this may result in a loss of VAT.
  • The transfer of goods from a GB business to an NI business within a VAT Group (usually disregarded for VAT) will now be subject to VAT. The VAT Group will also be entitled to recover the input VAT on this supply.  As above, for partially exempt VAT groups, this may result in a loss of VAT.

Last week, the Large Professional Services Firm Forum [“LPSF”] (including BDO LLP and BDO Northern Ireland) met with HMRC to discuss how the new rules will work and raise a number of questions that had arisen following publication of the policy paper. HMRC’s responses to these queries have provided greater guidance on how the trade of goods between GB and NI will look after the transitional period ends on 31 December 2020:

Accounting for VAT on the Trade of Goods Between GB and NI

HMRC have confirmed that NI is, and remains, part of the UK’s VAT system. Businesses’ existing VAT registrations will be unaffected and they will not be required to get another VAT registration for sales of goods in NI.

Per the NI Protocol, goods moving from GB to NI and vice versa are to be treated as imports and exports. As a result, there were concerns that HMRC’s policy on the recovery of import VAT (i.e. that only the owners of imported goods would be entitled to reclaim import VAT), would apply to the movement of goods between GB and NI.

However, HMRC have confirmed that their interpretation of the NI Protocol allows for import VAT arising on the movement of goods between GB and NI to be collected using the existing system of accounting for VAT (i.e. collecting VAT on supplies).

Therefore, businesses moving goods into, out of, or within Northern Ireland will continue to account for VAT on all sales across the UK through their single UK VAT return.

The seller of goods between GB and NI will continue to charge VAT on this supply and show VAT as chargeable on its invoices. The VAT chargeable should be accounted for by the seller as output VAT on their UK VAT return in the same box as it is now.

Where the customer receives an invoice from the seller showing VAT chargeable, it may use this as evidence to reclaim VAT as input VAT, subject to the normal rules.

Where a business is moving its own goods from GB to NI, there will be two entries on that business’ VAT return – one being for output VAT on the supply and one being for input VAT on the purchase.  Full relief for the input VAT will not be available for partially exempt businesses.

HMRC have confirmed that no requirements related to ownership of goods will affect movements between GB and NI and the processes described herein, including the ability to recover input VAT.

The above rules will not apply where goods are declared to a special customs procedure, are subject to the domestic reverse charge or are subject to an ‘Onward Supply’ procedure. In these cases, the customer or the importer will be required to account for any VAT due through its VAT return.

Statistical Reporting

HMRC have confirmed that there will be no Intrastat requirements for the movement of goods solely between GB and NI.

Intrastat declarations will be required from January 2021 for the following movements (subject to the Intrastat exemption threshold):

  • Goods imported into GB from the EU
  • Goods imported into NI from the EU
  • Goods exported from NI to the EU

Businesses will not have to submit Intrastat declarations for goods exported from GB to EU.

If you have any queries, please contact Will Tipping.