How accountants can show the way through Northern Ireland VAT and customs complexity

Businesses in Ireland have two sets of rules to follow, which multiplies the complications.

As the Government pushes the deadline for Brexit negotiations yet further towards the end of the year, there is no clear sign as to whether a trade deal with the EU will be reached.

What is clear, however, is that Northern Irish businesses have an uphill struggle if they are to meet the dual VAT regulations coming their way from January 1 next year.

Under the Northern Ireland protocol to the Withdrawal Agreement that has already been agreed, the region will have the most complex VAT and customs regime in Europe.

On the surface, it makes sense to apply distinct rules to Northern Ireland since it is being treated differently to the rest of the UK after Brexit.

The Northern Ireland Protocol means that Northern Ireland maintains alignment with the EU VAT rules for goods, including on goods moving to, from and within Northern Ireland. However, Northern Ireland is and will remain, part of the UK’s VAT system.

Major complexity

Yet while this might make sense superficially, the new system introduces serious complexities for Northern Irish businesses. These are compounded by potential differences of opinion between the EU and Britain over how to apply the rules. Furthermore, there will be changes according to what is ultimately agreed between the EU and the UK on any possible trade agreement.

Cróna Clohisey, public policy lead at Chartered Accountants Ireland, says: “The whole issue with VAT change is extremely complicated and there is still a huge amount of detail to be worked through.”

Clohisey adds: “The Government updated guidance on the VAT and customs changes this week but the EU will likely have its own interpretation on what the protocol will be.”

Customs rules for Northern Ireland

And accountants will need to help businesses with more than just VAT. There are also changes to the customs regime.

Lee Squires, head of indirect tax at Grant Thornton says: “Goods imported into the UK will be subject to the customs duties set out in the UK’s new Global Tariff schedule published in May 2020. Goods imported into the EU will be subject to the duties in the EU’s Common External Tariff.”

There will be the EU’s free trade agreements (FTAs) to contend with, too. British businesses no longer benefit from these. But they will still apply to Northern Irish businesses.

Squires says: “To benefit from [EU] FTAs, traders will need to ensure their products meet any relevant rules of origin requirements in the FTA. These vary between FTAs and depending on the type of product in question, but often require a certain proportion of ingredients to originate from, or processing to be carried out in, one of the countries that is a party to the FTA.”

This could present an issue where UK products include EU-originating or processed goods, in particular food and drink.

The UK produces and exports over £22 billion in food products for overseas markets, but the ingredients usually contain overseas goods, many of which are not produced in the UK or not in sufficient quantity throughout the year. The Food and Drink Federation says the EU and UK could consider innovative ways to protect the global supply chains of EU and UK food and drink manufacturers from disruption as a result of the re-imposition of origin requirements on EU-UK trade.

Not only are the rules themselves complex, but there are also discrepancies between how particular goods and services are treated under the regime and how they are treated, dependent on where they end up. To help, Grant Thornton’s Squires produced a table to summarise the issues that accountants and businesses need to be aware of and what is still to be decided (see table one).

How to help

Even with so little clarity, there is still plenty accountants can do to help businesses prepare for these changes.

The first is to help businesses moving goods into Great Britain apply for a UK Economic Operator Registration and Identification (EORI) number. The same will applies to British GB suppliers moving goods into the EU.

They will also need help with submitting import declarations where goods move from GB to NI and in securing the commodity codes for their imports/exports and the tariffs on these products under the EU Common External Tariff and UKGT.

Squires says: “Businesses also need to know whether goods they import from GB or the rest of the world could be at risk of moving to the EU, and the potential for reimbursement/waiver/compensation for any EU duties.

Accountants can also help businesses obtain qualifying status to show their goods are of Northern Irish origin and establish which party is responsible for import formalities and duties in their supply chain.

Significantly to help manage the costs, businesses can apply to HMRC for a grant towards the cost of updating systems. Further, accountants can establish whether any customs special procedures or reliefs could be applied to mitigate the very real expense of change.

While there are many issues yet to be clarified, it is clear accountants can play a valuable part in preparing businesses for this complex change.

Clohisey says the profession is already making a difference in this area but concludes: “There is so much to get through that patience is required. It will take time before systems and processes are able to manage the new regime.”

Source: Grant Thornton, Brexit VAT and Customs Issues for Northern Ireland Aug 2020

[i] [https://www.gov.uk/government/publications/accounting-for-vat-on-goods-moving-between-great-britain-and-northern-ireland-from-1-january-2021/accounting-for-vat-on-goods-moving-between-great-britain-and-northern-ireland-from-1-january-2021

Gill Wadsworth is AAT Comment’s news writer.