NI VAT regime - updates to HMRC guidance

Jan 12, 2021


From 1 January 2021, in accordance with the Protocol on Ireland/Northern Ireland, NI continues to remain aligned to the EU rules for trade in goods whilst it follows the UK rules for services. (You can read more on VAT and Brexit in our Brexit Digest of 18 December.)

Yesterday (January 11) HMRC published updated guidance on accounting for VAT on goods moving between GB and Northern Ireland from 1 January 2021.

Prior to this iteration of the guidance, HMRC required the GB business to charge import VAT in all cases of goods movements from GB-NI-EU (including Ireland). This left the EU business exposed from a cash-flow perspective, as there would often be a timing lag in being able to reclaim the VAT under the 5th Directive if the EU business was not UK VAT registered, and could not make the reclaim under that route.

The Institute has been lobbying HMRC on various aspects of the NI VAT regime since guidance was first published on 26 October 2020. We have also written to the European Commission, the Irish Government, HMRC and local government in NI raising a number of key concerns in respect of the NI VAT rules including the treatment of goods moving from GB-NI-EU.

In previous discussions with HMRC, we asked HMRC to recognise that the requirement for the GB seller to charge import VAT should not apply in all cases, specifically where the goods are situated in NI at the point at which the transfer of rights to the goods to the EU takes place. Instead, this should be treated as a movement of goods first to NI (GB seller charges VAT, NI purchaser reclaims if the goods are used in their business) and the subsequent sale to the EU is then treated as an intra-community dispatch and acquisition (zero-rated by the NI business, reverse charge by EU business).

The updated guidance published yesterday now reflects this. The Institute will continue to discuss this guidance with HMRC and is also seeking the inclusion of a number of case studies in the guidance to aid understanding.