Q&A: VAT implications of the Northern Ireland protocol

In our regular Q&A series, Croner Taxwise, VAT advice consultant, Sally Atkins, clarifies the post-Brexit VAT rules for clients based in Northern Ireland who both supply goods to and buy from mainland UK and the Republic of Ireland

Q. I have a number of clients based in Northern Ireland (NI) who both supply goods to and buy from mainland UK and the Republic of Ireland (ROI) mainly on a wholesale basis. Please could you clarify the rules post-Brexit.

A. Following the agreement of the Northern Ireland Protocol, HMRC has published guidance on the movement of goods to and from mainland UK (to be known as Great Britain) to NI and also across the Irish land boundary.

This policy paper confirms that under the Protocol, Northern Ireland maintains alignment with the EU VAT rules for transactions in goods. However, Northern Ireland is, and will remain, part of the UK’s VAT system.

This means that although technically GB-NI goods movements will become imports and exports, the UK government is able to rely on what are described as ‘existing flexibilities’ with the EU VAT rules (Articles 201 and 211 of Directive 2006/112/EC) to treat such transactions as normal UK VAT domestic transactions and the current pre-Brexit treatment will continue with output tax charged and input tax recoverable according to the normal rules.

Under the Protocol transactions in goods between Northern Ireland and EU businesses and consumers, including movements across the Irish land boundary, will continue as they do today, and the same processes and reporting requirements will apply with regard to dispatches and acquisitions.

As such, sales to VAT registered EU businesses, will continue to be treated as zero-rated dispatches.

Although your clients are dealing primarily on a business to business wholesale basis, for completeness sales of goods between NI and EU consumers will still be subject to the distance selling rules.

However, this is due to change on 1st July 2021 with the extension of the Mini One Stop Shop (MOSS) scheme, which will be extended to include all intra-EU B2C supplies including intra-EU distance sales.

This change will lead to the abolishment of distance selling thresholds. More detail on this can be found here: Modernising VAT for cross-border e-commerce.

The only practical change for NI businesses is related to the use of an XI preface by those NI businesses dealing with EU customers or suppliers instead of the usual GB prefix.

There will be no requirement to apply for a new XI VAT number, instead businesses should substitute ‘XI’ for ‘GB’ on invoices so that the transactions can be identified separately from UK VAT transactions.

It should be noted that the Protocol does not affect the VAT rules for services.

HMRC link: Accounting for VAT on goods moving between Great Britain and Northern Ireland from 1 January 2021

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