Article originally published on 9th December and updated on 28th December
The VAT rules for trading in goods and certain services with Great Britain will change from 1 January 2021. The Trade and Cooperation Agreement reached between GB and the EU will not impact these changes. Changes will also arise in respect of trading in services with customers in Northern Ireland in certain cases, write Glenn Reynolds, David Duffy and Richard Cowley of our VAT and Customs team.
Irish businesses should consider the impact of Brexit on business flows, systems and processes, which could potentially require new VAT logic and tax codes in their ERP/finance systems to capture the VAT changes that will occur as a result of Brexit.
We summarise the key changes below.
1. Trading goods between Ireland and Great Britain
Supplies of goods from Ireland to GB will be regarded as exports from 1 January 2021, while goods purchased from GB and delivered into Ireland will be treated as imports.
This change will result in additional formalities and complexities for both suppliers and customers as export and import declarations will need to be filed, and the VAT rules applicable to the supplies of goods will be more onerous than is currently the case for Intra-Community supplies of goods.
Businesses should familiarise themselves with the new regime that will apply from 1 January 2021. For example, it will no longer be possible to apply the VAT zero rate to the export of goods to GB if the customer is Irish established and the customer arranges the export.
While Irish import VAT is typically due at the time the goods are imported into Ireland, postponed accounting for VAT on imports is due to be introduced, which will apply to all imports from “third countries” from 1 January 2021. VAT registered importers with a Customs EORI number should be able to elect to apply postponed accounting at the time import declarations are being filed, and the import VAT should then be recorded in the importer’s Irish VAT return under the reverse charge procedure. There are however significant penalties if the regime is not correctly operated.
See our article Postponed VAT accounting for imports for further information.
2. Trading goods between Ireland and Northern Ireland
The terms of the Ireland/Northern Ireland Protocol require that Northern Ireland maintains alignment with the EU VAT rules for goods (but not services).
Therefore, there will be no change to the current VAT rules in respect of goods traded between Ireland and NI with the exception that NI businesses and those trading in goods in NI will be required to use an “XI” prefix in front of their VAT registration number rather than the “GB” prefix when trading with EU suppliers and customers.
Note complex rules will apply to goods shipped from GB through NI to ROI and from ROI through NI to GB.
3. Impact of change in VAT rules on supply chains
The impact of the UK leaving the EU can affect the VAT treatment of supply chains involving UK companies even if the goods do not physically enter or leave GB.
Irish and UK traders should review their supply chain to determine if there are availing of any VAT simplification measures applicable to trading in goods in the EU, for example, triangulation simplification, call-off stock relief, or second-hand margin schemes that may be impacted by the UK leaving the EU VAT area from 1 January 2021. This may trigger new VAT registration obligations in other EU member states for Irish traders or Irish VAT registration obligations for non-Irish businesses.
For example from 1 January 2021:
It may not be possible to apply triangulation relief to certain sales involving GB companies.
It will not be possible to apply the margin scheme to goods sourced from GB.
Call-off stock relief will cease to apply on sales into GB.
4. Distance sales of goods to GB
The rules applicable to B2C sales of goods will be impacted by Brexit, and Irish companies that currently charge Irish VAT on B2C supplies of goods to GB consumers should not charge Irish VAT on such supplies from 1 January 2021.
The current distance sales threshold in the UK of £70,000 – below which B2C sellers of goods from Ireland into the UK could avoid having to register for UK VAT – will no longer apply. Under new rules, Irish sellers will be liable to charge UK VAT at the appropriate rate on goods shipped from Ireland to consumers in GB in consignments of £135 or less. For consignments with a value over £135, import VAT and potentially customs duty will be due and the Irish supplier will therefore need to consider whether they arrange for payment of the UK VAT and custom duty or if their customers should be responsible for the payment of any customs duty and VAT arising in the UK. The new rules will also place VAT collection obligations on electronic platforms where they facilitate sales of goods into the UK in consignments of £135 or less.
Businesses should also consider issues such as VAT on goods that are returned.
The distance sale rules in respect of sales into Northern Ireland will remain the same (until the EU rules change on 1 July 2021).
5. Supply of services
While the VAT treatment applicable to the supply of most B2B services between Ireland and the UK will broadly remain the same, there are a number of issues that should be considered:
Irish VAT should not arise on the supply of certain services (e.g. consultancy, legal, accounting) to non-business customers (which includes not only private consumers, but also entities such as pure holding companies) in GB or NI from 1 January 2021.
Supplies of certain services to customers outside the EU but “used and enjoyed” in Ireland can give rise to Irish VAT implications, for example, leasing an asset to a GB or NI entity which is used in Ireland. Irish companies leasing assets to UK businesses will therefore need to consider whether Irish VAT becomes due on their supplies as a result of Brexit.
The VAT treatment of B2C supplies of electronically supplied services, telecommunications services and broadcasting services will change post 1 January 2021. The mini one-stop-shop (MOSS) scheme will no longer apply in respect of UK VAT charged on B2C supplies to UK consumers, and Irish companies engaged in such supplies will need to VAT register in the UK post Brexit in order to account for the UK VAT due on such supplies.
6. VAT recovery entitlement
The VAT recovery position for Irish companies supplying VAT exempt financial services to UK customers (including those in Northern Ireland) should improve from 1 January 2021 onwards, as such services should be regarded as “qualifying activities” giving rise to VAT recovery on associated costs post Brexit.
This is a significant change from the rules applying currently where there is no VAT recovery on costs associated with supplying exempt financial services to UK established customers.
7. Non-established entities claiming VAT recovery in GB
The method and time frame by which Irish companies reclaiming VAT incurred in GB (in the absence of a UK VAT registration) will change from 1 January 2021.
Currently such claims are submitted to Irish Revenue for processing under the EVR procedure, however post Brexit, applications will need to be sent directly to HMRC and the period to make the reclaim will shorten to the end of June (compared to end September) in the year following the year in which the VAT was incurred.
Transitional rules will apply for VAT incurred in 2020 up to 31 March 2021.
8. Statistical reporting & returns for trading with GB
Irish entities trading goods with GB customers will no longer be required to record the value of such transactions in the statistical boxes on their Irish VAT returns, in VIES returns, or in Intrastat returns, from 1 January 2021.
Irish traders currently filing Intrastat returns should review the level of sales and purchases with other EU jurisdictions (including NI) from 1 January 2021 to consider if they are still required to file such returns when sales/purchases with GB are excluded.