VAT under the Northern Ireland Protocol

Under the newly agreed Northern Ireland Protocol, the Value Added Tax Act (1994) will be amended so that Northern Ireland maintains alignment with the EU VAT rules for goods.

This means that the rules for intra-EU movements of goods that currently apply, will continue to apply after the end of the transition period on 31 December 2020, which includes current EU rules on distance selling and acquisition VAT.

This should ensure that VAT will be accounted for by businesses and individuals in a similar way as it is today so that minimal disruption is caused.

In addition to this, according to Government documents, the updated Protocol will:

  • Specify the VAT liable on goods moving between Great Britain and Northern Ireland and allow HMRC Commissioners to determine with whom the liability lies.
  • Minimise, as far as possible, changes to VAT business processes when goods are moved between Great Britain and Northern Ireland while remaining within the parameters of EU law as applied to NI.
  • Protect VAT revenues and ensure the efficient flow of goods between Great Britain and Northern Ireland.

This measure does not cover the provision of services to or from Northern Ireland, as services are not in the scope of the Protocol.

Acquiring an XI number 

In preparation for the changes to VAT, businesses that trade with Northern Ireland will need to obtain ‘XI’ VAT and EORI numbers before 1 January 2021. These are to be used on invoices, statistical reporting and customs documents to help HMRC and the EU with transactions where:

  • Goods are located in Northern Ireland at the time of sale;
  • Goods are supplied in Northern Ireland by VAT-registered EU businesses; or
  • There is a sale or movement of goods from Northern Ireland to the EU.

If businesses are involved in any of these transactions, they must notify HMRC so that they can be provided with their XI number.

If a business is already using the Government’s free Trader Support Service, which assists with moving goods into Northern Ireland they may already have been given this number, which they must retain and use.

The VAT treatment of goods – The basics 

For Northern Irish business to business trade with Great Britain, goods moving between Ireland and Northern Ireland between established traders will continue to be treated as movements across internal EU borders. This means they remain intracommunity VAT zero-rated transactions.

Business to consumer sales between Northern Ireland and Ireland will still also be subject to the distance selling threshold rules and subject to the VAT rate of the consumer’s country of residence.

However, from 1 July 2021, under the EU e-commerce package, distance selling thresholds will be scrapped and Northern Irish businesses will be able to use a single VAT return instead via the One-Stop-Shop.

Any business to business goods moving between Great Britain and Northern Ireland will be treated as domestic UK VAT supplies.

EU VAT recovery

Under the unique arrangements of the Protocol, Northern Irish businesses will continue to benefit from continued access to the EU 8th Directive VAT reclaims electronic portal.

This allows for easy reclaiming of EU VAT incurred on travel, entertainment, travel, promotion and advertising expenses incurred in any EU member state.

In comparison, businesses based in Great Britain will have to use a paper-based country-by-country reclaim process after 31 December 2020.

Here to help

The rules around VAT and the Northern Ireland Protocol are complex. While this article touches upon many of the rules, it is important that you seek advice before the end of the transition period to ensure you and your business are prepared.