The Future of VAT in Northern Ireland

As negotiations to determine the future relationship between the EU and UK beyond the end of the transition period resume, after a COVID-19 initiated pause, it’s worth taking a moment to review some of the anticipated VAT implications of Brexit, and in particular the impact on Northern Ireland.

Prior to the UK leaving the EU, they both agreed to a “Revised Protocol on Ireland and Northern Ireland.” This protocol laid out the special arrangements, including provisions for VAT, for Northern Ireland beyond the end of the transition period.

Currently, the UK, including Northern Ireland, are subject to EU VAT rules and are considered part of the EU’s VAT territory. At the end of the transition period the UK, excepting Northern Ireland, will no longer be part of that territory and as a result will be freed from EU VAT rules. This means that supplies of goods and services between the EU and UK will be treated like other supplies between the EU and the rest of world. Also, EU restrictions on VAT rates and which supplies the UK can and can’t be exempted from VAT will no longer apply.

Northern Ireland’s VAT regime

To help preserve open borders between the Republic of Ireland and Northern Ireland a special VAT regime will apply in Northern Ireland. Specifically:

• Supplies of goods sourced to Northern Ireland will be treated as supplies within the EU. Meaning that:
  • EU restrictions on minimum VAT rates apply
  • EU restrictions on which goods can be subject to reduced rates or exemptions will still apply
  • EU rules mandating the exemption, with or without credit, on certain supplies will still apply
  • B2B sales of goods between the EU and Northern Ireland will continue to be treated as intra-community acquisitions
  • Distance sales rules continue to apply to B2C supplies between the EU and Northern Ireland
  • Sales of goods between the UK and Northern Ireland will be treated as a sale of goods into and out of the EU VAT territory.
• In Northern Ireland, the UK is authorized to apply reduced rates and exemptions in line with Irish VAT law.
• Supplies of services into and from Northern Ireland aren’t subject to the protocol and should be treated the same as supplies into and from the UK.

As Northern Ireland will still be subject to EU VAT rules businesses making supplies of goods between Northern Ireland and the EU will still have to complete a recapitulative statement. Additionally, Intrastat reports will still have to be filed by those trading between the EU and Northern Ireland.

The unique Northern Irish VAT regime will present new challenges and raise new compliance questions for businesses. Some key points for businesses to consider when the transition period ends include:

• Whether the business’s accounting, invoicing, and other business software is set up to distinguish between supplies to Northern Ireland and the rest of the UK
• Whether the business is prepared to file additional VAT related filings for Northern Ireland
• If the One Stop Shop for goods applies, now scheduled for implementation 1 July 2021, on supplies of goods to and from Northern Ireland
• Whether the UK elects to apply Irish reduced rates and exemptions to Northern Ireland.

While many of the practical details of the new VAT regime are still to be determined, businesses doing business in Northern Ireland should begin preparing to address the new compliance challenges of Northern Ireland’s unique VAT rules.