Brexit: VAT implications of NI trade

The Northern Ireland Protocol means that while the UK has transitioned out of the EU, Northern Ireland (NI) has kept closer links to the EU. What is the impact of those links on trade between Northern Ireland and the rest of the UK?

From 1 January 2021, the UK's adjustments to trading with the EU do not apply to the same extent as they do with Northern Ireland.

• Under the Northern Ireland Protocol, NI is part of the UK VAT system but remains aligned to the EU VAT rules.
• When dealing with indirect taxes, NI is treated separately to the rest of the UK. The UK now being referred to as 'GB', in this context.

VAT on sales from GB to NI

• GB businesses need to account for VAT on sales to NI customers. The business' existing VAT registration is sufficient and all UK sales (GB and NI) can be accounted for on the same VAT return.
• VAT is charged on the sale as Output VAT. The customer can reclaim the VAT as Input VAT.
• Exceptions include:
  • Goods placed into Special Customs Procedures: VAT (and duty) must be paid when the goods leave the Procedure, unless using Postponed VAT.
  • Goods for onwards supply to the EU: VAT is paid in NI and when the goods are forwarded, the VAT can be reclaimed through Onward Supply Relief.
  • Goods sold by overseas sellers through online marketplaces: the marketplace is now liable for the VAT in this scenario.
  • Goods subject to the domestic reverse charge (not the EU reverse charge rules).

VAT on the movement of goods from GB to NI

• The movement of goods, whether intra-business or intra-UK VAT group, is treated as a taxable supply and Output VAT will be due. 
• If the goods are then used as part of a taxable supply, Input VAT can be reclaimed.

VAT on goods from GB to EU and vice versa (transported via NI)

• The treatment of goods when transported through NI on their way from GB to the EU depends on the location of the goods at the point of sale.
  • If located in GB, the export is zero-rated, but the invoice must charge the customer Input VAT for the EU destination. The VAT charged is accounted for as Output VAT by the UK seller on their UK VAT return and the customer can reclaim the Input VAT either through the EU refund scheme or on their own UK VAT return (if registered).
  • If located in NI, there are two movements for VAT purposes. The first is the transfer of goods from GB to NI (see above) and the second is an intra-EU movement.
• Goods travelling from the EU to GB via NI will be subject to import VAT and must account for this in the UK. The EU business will need to register for VAT in the UK, account for the VAT on the VAT return. The UK customer may reclaim the VAT as Input VAT.

VAT on goods from NI to GB

• There will be no requirement to account for VAT on the sale or movement of goods flowing from NI to GB.
• NI businesses already registered for UK VAT will have a new XI EORI number automatically issued to them for customs reporting of non-EU cross-border transactions.

Services

• The Northern Ireland Protocol does not cover services.
• NI will continue to follow the UK VAT rules on services, including the changes that have been made regarding services provided to or received from the EU.

Useful guides on this topic

Registering for VAT 
A guide to explain when to register for and charge VAT? VAT registration limits and VAT rules after Brexit. What penalties might HMRC issue for late notification of registration?

Exporting goods from GB from 1 January 2021  
The post Brexit transition period ends on 31 December 2020. HMRC has issued guidance for exporting goods. Is your business ready? Have all of the relevant applications been made in order to continue trading smoothly?

Importing goods into GB from 1 January 2021 
The post Brexit transition period ends on 31 December 2020. HMRC has issued guidance for importing goods. 

Place of Supply: services  
The place of supply (POS) of a service determines whether the supply is within the scope of UK VAT and whether VAT is payable on that supply.