Northern Ireland Protocol: VAT implications

Russell Hughes
November 25, 2020

Northern Ireland Protocol: ‘Windsor Framework’ Developments

Update: 28 March 2023 by Russell Hughes

UK Government reaches agreement with EU on new Brexit Deal

The UK government has agreed with the EU on major changes to the Northern Ireland protocol, referred to as the ‘Windsor Framework’.

The protocol is the part of the Brexit deal which sets Northern Ireland’s trade rules and keeps it inside the EU’s single market for goods. While it keeps the Irish land border open, the protocol means products arriving in Northern Ireland from the rest of the UK are subject to VAT and customs procedures.

What has changed with the Windsor Framework?

From a VAT and customs point of view, the significant change will be the introduction of green and red lanes for goods coming into Northern Ireland from Great Britain.

British goods staying in Northern Ireland will use the green lane at Northern Ireland ports, facing minimal paperwork and no routine physical checks. Whereas goods due to travel into Ireland will use the red lane, facing customs processes and other checksat Northern Ireland ports.

A business must be registered as a trusted trader under the new United Kingdom Internal Market Scheme (UKIMS) to use the green lane.

Some large businesses that are members of existing schemes, such as supermarkets, will automatically be transferred to the UKIMS. Businesses with no premises in Northern Ireland will also qualify and be able to register for the scheme.

When do the new changes take effect?

EU Member States approved critical parts of the Windsor Framework at a meeting on 22 March 2023, whilst this received parliamentary backing in the UK House of Commons on 23 March 2023. However, no date has yet been given on when this would come into effect – should both sides vote it in.

With VAT changes seemingly on the horizon, it’s important for businesses to be prepared. Speak to our expert team for assistance.


HMRC issue guidance on VAT accounting processes for goods moving between Great Britain and Northern Ireland from 1 January 2021

Update: 25 November 2020 by Russell Hughes

HMRC has published a policy paper that outlines the VAT accounting process for goods moving between Great Britain (GB) and Northern Ireland (NI) from 1 January 2021.

As from 1 January 2021, the Northern Ireland protocol will come into force. This means that NI will remain in the part of the single market and customs union. Post-Brexit, Northern Ireland maintains alignment with the VAT accounting rules for goods coming from the EU. At the same time, NI will also remain part of the UK’s VAT system, which means there will be no requirement for businesses in GB to have to register for VAT separately in NI.

VAT on goods sold to NI customers

VAT will continue to be accounted as it is currently on goods sold between GB and NI. This means that the seller of the goods will continue to charge its customers UK VAT and account for this in the relevant boxes on its UK VAT return.

The buyer of UK goods may continue to recover the input VAT charged in accordance with normal rules and report this in the relevant boxes of the UK VAT return.

However, there are a small number of exceptions to this where goods are:

  • declared into a special customs procedure when they enter NI or GB; or
  • are currently subject to domestic reverse charge rules; and
  • those subject to an Onward Supply procedure.

Where the movement of goods falls within one of these exceptions, the customer or importer will account for the VAT on their UK VAT return.

Transfer of own goods between GB and NI

When a UK VAT registered business transfers its own goods from GB into NI, VAT will be due. This is because there is an import of the goods into NI. The business will need to account for output VAT on the movement of goods on its UK VAT return. Whilst at the same time, and providing they are used for making taxable sales, also reclaim the input VAT. This will be subject to the normal rules on VAT recovery.

If the business uses the goods for exempt activities, partial exemption considerations will have to be taken into account. This could create double taxation as there is a possibility that there will be irrecoverable input VAT incurred again on the same goods. To avoid affected businesses can reattribute the originally incurred VAT to allow full recovery as part of the annual adjustment. HMRC will introduce new rules to avoid this being used for avoidance purposes.

For goods moving from NI to GB, the business will not be required to account for VAT on this movement.

VAT groups

VAT groups will need to deal with the movement of goods from GB to NI in the same way. They will also have to account for VAT on the transfer of goods that are physically in NI between VAT group members where neither group member has a fixed establishment in NI, or only one of them does.

EU simplifications

Whilst it may not be possible for business established in GB to use EU simplifications such as triangulation, it may be possible for NI businesses to still use such simplifications or where the intermediary is identified as moving goods in, from, or to, NI in the course of its business.

Margin scheme

Goods that are moved from GB to NI will not be eligible to be sold within a margin scheme. This is due to VAT having to be accounted for on the movement of goods to NI. However, goods moved from NI to GB will still be eligible to be sold under the margin scheme rules in GB.

Sales of goods on board ferries between Great Britain and Northern Ireland

Taxpayers continue to apply UK VAT on goods sold on board ferries between GB and NI. The seller accounts for this on their UK VAT return.

Where goods are sold on journeys that visit GB and NI as part of a voyage to third countries, the supply tax treatment is taking place outside the UK. So they are outside the scope of UK VAT.

Where goods are sold on journeys between NI and an EU member state, the current rules will apply. The tax applies at the place of departure.

For businesses that have supply chains involving NI, we would recommend these are urgently reviewed in light of the above changes. Our VAT experts are on hand to help should you wish to discuss this further. Contact us now.

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Russell Hughes

At Sovos, Russell works within the Consulting team providing UK and cross-border supply advice, detailed reviews on existing and new business activities and practical solutions to clients’ businesses. Prior to joining Sovos, Russell was the VAT manager of an award-winning tax team based in a firm of Chartered Accountants in the South East of England. Having initially begun his career in audit and accounts, he specialized in VAT in 2011, where he gained significant experience in cross-border issues, imports and exports, land and property, group registrations, partial exemption, HMRC enquiries and other complex VAT transactions. From June 2015, Russell was the sole VAT specialist in his previous company, where he led the firm’s VAT compliance and consultancy projects including all day-to-day VAT queries. Russell is also a member of the VAT Practitioners Group (VPG).
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