On Friday, we reported on the highlights of the Windsor Framework and the events of last week in our weekly EU exit bulletin. Today we take a closer look at strand one of the agreement; the revised East-West trade operating model. HMRC has also sent several updates on the agreement which you can read here and we also set out the key tax and excise changes in addition to signposting you to updated publications and guidance.
Strand one – the revised East-West trade operating model
As set out in our story on Friday, under the revised trade operating model, a ‘green lane’ (or new UK internal market system) will be provided for trusted traders moving goods from Great Britain into Northern Ireland, that are not intended for the EU single market. Products that are destined for the EU would be placed in a ‘red lane’ and will continue to undergo full checks and customs controls. As confirmed by UK Government officials, it is expected that these customs changes will take effect from 1 September 2023.
A revised and easier to access ‘Trusted Trader Scheme’ for internal UK traders will underpin green lane movements as will new data-sharing arrangements which will use commercial data and technology to monitor trade flows, rather than relying on international customs procedures.
After the agreement was announced, Chartered Accountants Ireland met with UK Government officials for an initial discussion on the agreement. At that meeting, the Institute asked, on foot of Paragraph 13 of the Windsor Framework, if the Trader Support Service (“TSS”) is being made permanent as it is currently due to cease on 31 December 2023. The need for the TSS to be extended beyond 2023 is an ongoing recommendation of the Institute and a lobbying matter which we highlighted once again last month in a letter to HMRC.
Paragraph 13 of the Windsor Framework refers to businesses moving goods in the green lane (see below) via “a radically simplified process for goods movements, underpinned by the existing Trader Support Service (TSS)”. Although it was not confirmed if the TSS will be a permanent feature, UK Government officials did state that they recognise the overall need for continued support in this area and the important role of the TSS.
Underpinning green lane movements will be a revised and expanded ‘Trusted Trader Scheme’. The revised scheme will significantly increase the number of businesses able to move goods using the green lane, who will be classed as internal UK traders, via three changes as follows:
- businesses throughout the UK will be eligible to join, and not just those with physical premises in Northern Ireland as per the current scheme;
- the turnover limit for businesses involved in processing to move goods is being increased fourfold from £500,000 to £2,000,000; and
- businesses with turnover above this threshold will still be eligible to move goods under the scheme if the goods are for use in the animal feed, healthcare, construction, and not-for-profit sectors. They will be able to do this even as intermediaries or if they sell on the eventual product. Inputs into food production will continue to benefit from inclusion in the ‘not at risk’ definition.
The scheme will essentially end the requirement for traders to provide customs commodity codes for each movement, scrap supplementary declarations and ensure that businesses can therefore move their goods using the same type of commercial information as they already hold when moving goods to the Isle of Wight.
Goods will automatically be treated as internal UK movements for tariff purposes, with no rules of origin requirements. Customs checks will only be undertaken for risk-based and intelligence-led purposes to specifically target criminality and smuggling. Once a good has moved, there will be no further process involved after arrival in Northern Ireland.
Traders already using the UK Trader Scheme will, if they wish, be auto-enrolled in the new scheme which we are told will be straightforward to sign up to for those not enrolled in the current scheme.
VAT and excise changes
The key VAT and excise aspects as a result of the agreement are as follows:-
VAT
- Specific agreement to remove the prospective limit on the number of zero or reduced rates the UK can have in place in Northern Ireland (“NI”). According to the Command Paper, forthcoming changes to the EU VAT rules would have limited the number of zero and reduced rates that could be applied to goods in NI. The UK currently exceeds this number of zero rates;
- Full flexibility on the VAT rates which apply to supplies of goods installed at immovable property and also on supplies of goods where it is agreed that those goods will, by their nature, be consumed in NI. This will include, for example, the installation of energy saving materials;
- On the upcoming (2025) changes to the application of EU VAT registration thresholds, NI businesses will now be exempt from the SME Directive, which would have required them to have a lower VAT registration threshold than the rest of the UK, in addition to imposing double accounting and other administrative burdens; and
- On the VAT Import One Stop Shop (“IOSS”) accounting system (for imports of low value goods up to £135), the deal ensures that any Great Britain to NI sales and movements will be entirely outside of the scope of IOSS. This means these potential accounting and reporting burdens have been permanently removed, while businesses trading in NI will have access to, and benefit of, the optional simplification scheme – once this is fully implemented in NI for all direct and indirect imports from the rest of the world.
Excise
The agreement allows the Alcohol Review announced at Budget 2021 to be implemented in NI. EU minimum duty rates and maximum qualifying threshold for small producers will still apply in NI.
Guidance and publications
The following guidance documents have also been updated as a result of last week’s agreement:-