The Brexit transition period ended at 11pm on 31 December 2020. Consequently, VAT accounting will change for goods moving between the European Union and the United Kingdom.
An exception to these changes is Northern Ireland which, unlike the rest of the UK, will remain aligned with EU VAT rules for goods. The special status Northern Ireland will benefit from has been agreed upon by both the UK and EU under the Northern Ireland Protocol to avoid a hard border between Northern Ireland and the Republic of Ireland.
Essentially, Northern Ireland will be subject to a dual VAT system: the EU VAT legislation for goods on the one hand and the UK VAT rules for services on the other hand.
The UK tax authorities – HMRC – will remain responsible for collecting VAT in Northern Ireland. As such, the UK VAT return will not change and all UK sales will continue to be reported in the UK VAT return whose boxes remain unchanged.
A new prefix to use in front of your GB VAT number
A dual VAT legislation in Northern Ireland means that distinct VAT numbers should be used for the supply of services and goods.
As a result, a significant change to VAT accounting for goods is that sellers will need to use the prefix ‘XI’ instead of GB, in front their UK VAT registration number when:
- Their goods are located in Northern Ireland at the time of sale to customers
- Receiving goods in Northern Ireland from VAT registered EU companies for business purposes
- Selling or moving goods from Northern Ireland to an EU country.
In the above cases, the ‘XI’ prefix will have to be provided to the EU customer or supplier, including on invoices.
Additionally, ECSL will continue to be required when selling goods from Northern Ireland to another business VAT registered in the EU.
In the following sections, we have highlighted some of the most common transactions where sellers will need to rethink how to account for VAT in Northern Ireland from 1 January 2021.
Importing goods in consignments with a value up to GBP135 in Northern Ireland
As you may aware, new e-commerce rules have been effective in the UK from 1 January 2021. The rules in Northern Ireland will align with the rest of Great Britain for overseas goods imported in consignments with a value up to GBP135. When importing into Northern Ireland goods from outside the EU in parcels up to GBP135, the goods will be subject to import VAT. The seller will therefore need to VAT register and account for the import VAT on their GB VAT return. This applies to both resident and non-resident UK businesses.
No changes apply to goods imported in consignments valued more than GBP135 as import VAT will still be due under the same process as it currently is.
Selling goods from overseas into Northern Ireland through a marketplace
From 1 January 2021, the responsibility to account for the import VAT on the sale of goods through an online marketplace has shifted from the overseas seller to the marketplace in the two following scenarios:
- The goods are already located in Great Britain at the time of the sale, and sold to a customer based in Northern Ireland.
- The goods are already located in Northern Ireland at the time of the sale, and sold to a customer based in Great Britain.
Please note that different VAT rules apply when both the seller and the customer are based in Northern Ireland as well as for B2B sales through marketplaces.
Import VAT applicable on goods moving between Northern Ireland and Great Britain
Under the Protocol, import VAT will be due when goods enter Northern Ireland from Great Britain (Scotland, England and Wales). Likewise, import VAT will be due on goods entering Great Britain from Northern Ireland.
Supplying goods between Northern Ireland and the rest of the EU
The supply of goods between Northern Ireland and the rest of the EU will continue to be considered as intra-community acquisitions and dispatches (rather than imports and exports).
Distance sales to consumers will also continue to be treated under the EU VAT distance selling regime. From 1 July 2021, online sales into Northern Ireland can be accounted for on the new OSS scheme for intra-EU distance sales.
Additionally, intra-EU simplifications, such as triangulation for example, will continue to apply to movements of goods involving Northern Ireland, but not the rest of Great Britain.
Moving goods from Great Britain to the rest of the EU, through Northern Ireland
When goods are moved from Great Britain through Northern Ireland to an EU country, the VAT accounting will be like a direct movement of goods from GB to Northern Ireland.
The business moving the goods will be responsible for accounting for the import VAT and zero-rating the goods exported to the EU.
The seller will be able to account for the VAT charged as output VAT on their UK VAT return. This VAT will, however, not be reclaimable as input VAT.
Exceptions exist to this scenario where goods are declared under a special customs procedure for example. If you are unsure whether exceptions apply to you, please feel free to contact us.
Selling goods to Great Britain from the EU through Northern Ireland
Where a seller supplies goods from the EU to GB customers, through Northern Ireland, the seller will be responsible to account for the UK import VAT due to the UK tax authorities.
If you are based in the EU, you would need to register for VAT in the UK and account for the VAT on your UK VAT return.
Your UK customer would then be able to reclaim the VAT as input VAT.
Along with the end of the transition period, change is definitely coming to the VAT treatment of your goods moving between the EU and the UK and the Protocol on Northern Ireland is about to add another layer of variables to consider when determining the VAT treatment of your goods.
If you are involved in operations in Northern Ireland, sign up for free to the Trader Support Service. If you are unsure about how the Protocol and upcoming ecommerce changes will impact your VAT reporting obligations in the UK, feel free to contact us and our team would be happy to help you understand whether your sales of goods are covered by the Protocol on Northern Ireland.