UK adopting the new EU VAT rules in respect of Northern Ireland

UK adopting the new EU VAT rules in respect of Northern Ireland 

After months of unclarity over the UK position on the new VAT One Stop Shop, HMRC has finally confirmed that the UK will be implementing a VAT OSS scheme in relation to B2C distance sales of goods between Northern Ireland and the EU.   

Since the UK left the European Union on 31 December 2020, Northern Ireland has been granted a special status for VAT purposes and as such, the territory continues to follow EU VAT rules for goods under the Protocol on Ireland and Northern Ireland.  

As new VAT rules for ecommerce are being implemented throughout the EU starting 1 July 2021, these will affect the UK in respect for B2C supplies of goods involving Northern Ireland.  

How is the UK planning to transpose the new EU ecommerce rules?  What do you need to know if your business is involved in B2C online sales in Northern Ireland?  

In this blog post, we’re sharing with you the latest from the UK government with regards to the implementation of the EU VAT changes. If you want to dig deeper into these changes, feel free to check our resources available on our online dedicated hub.  

The VAT position of Northern Ireland 

Since the UK left the EU as of 31 January 2021, Northern Ireland has benefited from a special status based on which EU VAT rules continue to apply to goods. Essentially, Northern Ireland is subject to a dual VAT system: the UK VAT rules for services, and the EU VAT regime for goods.  

As a result, EU distance selling rules continue to apply to goods shipped between Northern Ireland and the rest of the European Union.  

Despite this dual VAT system, the UK remains responsible for making sure the relevant legislation and simplifications are implemented and followed by traders. This includes the new EU VAT simplifications for ecommerce businesses for which HMRC has now released information about.   

The new EU ecommerce VAT rules 

Starting 1 July 2021, the new EU VAT measures will change the way VAT is collected from EU consumers. And, as Northern Ireland follows EU VAT rules for goods, it will also be subject to the changes. This includes the introduction of the new One Stop Shop, which will work as an extension of the existing Mini One Stop Shop, with the scope being broadened.  

Additionally, the new EU-wide threshold of EUR10,000 (£8,818) will also apply to Northern Ireland based businesses. Simultaneously, B2C supplies of goods to Northern Irish consumers will need to be accounted for in the calculation of this new EU annual threshold.  

A new country prefix to be used 

As recommended by the EU, a new country prefix should be used for transactions made under the Protocol on Northern Ireland to distinguish supplies relating to Northern Ireland and the rest of the UK.  

As such, businesses will be able to report supplies to and from Northern Ireland using the new ‘XI’ country prefix, which can already be validated on the EU VAT number database.  

Introduction of a UK One Stop Shop 

As the UK is responsible for implementing EU VAT rules affecting trade under the Protocol of Northern Ireland, HMRC will be launching an online One Stop Shop (OSS) to allow businesses to account for the VAT due on eligible supplies. 

It is worth noting that the scope of this new UK OSS scheme will be limited to B2C supplies of goods only, not services.  

The filing frequency of the UK OSS will follow the reporting calendar of the rest of the EU as returns will be due on quarterly basis.   

Once registered on the OSS, businesses must use it to account for all their intra-community distance sales in the EU and Northern Ireland.  

A UK Import One Stop Shop 

As required in the ecommerce VAT package, changes will also apply to the treatment of goods imported into the EU and Northern Ireland in consignments with a value not exceeding  £135 (€150). Some of these requirements were already implemented in the UK from 1 January 2021 under the new UK VAT rules for ecommerce. 

Under the new changes, businesses will be able to register on the new Import One Stop Shop (IOSS) to account for the VAT due on these low value imports to consumers.  

VAT rules changes for marketplaces 

The EU VAT changes affecting sales made on a marketplace will also apply to goods being imported into Northern Ireland. This is also partly in line with the ecommerce VAT changes that the UK implemented this year.   

For example, an online marketplace will become liable to account for the VAT due on goods stored in the EU or in Northern Ireland when these are sold to EU or NI customers by an seller based outside of the EU and the UK.  

Marketplaces will also be able to use the UK OSS to account to the VAT due when they become deemed supplier for VAT purposes.  

How to prepare for using the UK OSS 

More information is due to be shared by HMRC before 1 July 2021, the due go live date of the EU OSS. What we know so far is that the UK IOSS portal will not be ready to launch on time and that HMRC is yet due to advise businesses on what to do until the scheme is available.   

If you make distance sales of goods to or from Northern Ireland and the rest of the EU, these rules may affect your business and we would be happy to help so contact us today!