In this week’s EU exit bulletin, we provide a comprehensive analysis of the key provisions introduced as part of the new Protocol agreement, the 'Windsor Framework', jointly announced this week by the UK government and EU.
We also bring you the latest guidance, updates and publications relevant to the EU exit including changes to the date for making certain supplementary declarations, improved transit guidance and news about the move to phase 5 of the new computerised transit system. The latest Trader Support Service newsletter is also available.
Key features of the UK and EU agreement on Protocol
Earlier this week, the UK and the EU announced in a joint Press Conference held by Prime Minister Rishi Sunak and EU Commission President Ursula Von der Leyen that the recent Protocol negotiations have resulted in an agreement via a joint political declaration. The UK Command Paper, known as “The Windsor Framework: A new way forward”, and associated publications and legal text were published shortly after the meeting and are linked later in this story. Below we set out an overview of the main aspects of the agreement and highlight key messages and issues initially discussed with UK Government officials earlier this week in respect of the revised Protocol arrangements.
Next steps for the agreement
The Prime Minister confirmed at Monday’s Press Conference that Parliament will have a vote on the agreement. On the EU side, the Windsor Framework consists of multiple documents, including political declarations, agreements made by the EU-UK Withdrawal Agreement Joint Committee, and updates to EU legislation. This means that some aspects will need the agreement of the 27 EU member states, whilst others will need to go to the European Parliament.
In his statement to the House of Commons, Rishi Sunak confirmed that the Northern Ireland Protocol Bill will not now proceed. The EU will also no longer continue with their legal actions against the UK.
Key messages from UK Government officials
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.
Government officials also stressed that businesses do not need to take any action now – goods movements will continue as they are currently. Although it was not explicitly confirmed if the current grace periods will continue, this would seem to suggest that the grace periods will remain in place until the new arrangements take effect.
Officials also confirmed the timeline for delivery of key aspects of the agreement. The new customs arrangements, including the revised Trusted Trader Scheme for green lane movements, are expected to be in place from September 2023, with the revised arrangements for parcels coming into operation a year later. The reimbursement scheme, another long standing lobbying issue for the Institute is on a timeline to be delivered by summer 2023.
Officials also took away a number of questions raised on issues such as the treatment of mixed loads, and if apportionment will still be possible as it is under the current arrangements with promises that responses will be made available in the coming weeks.
It was also clear that the meeting was very much an initial one with further engagement mechanisms being developed to disseminate key messages, educate and seek stakeholder feedback, which will include sectoral outreach. Chartered Accountants Ireland will continue to engage with the UK Government as more information on the agreement is developed and published. In the meantime, please send any feedback you may have to us.
The three strands of the Windsor Framework
The new Protocol agreement is shaped around three key strands which we examine below. More detail will follow in the coming weeks in Chartered Accountants Tax News.
(i) East-West trade operating model.
Among the changes to the current trade operating model as a result of the agreement, 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. A revised and easier to access ‘Trusted Trader Scheme’ for internal UK traders will underpin these 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.
This means that goods will be able to move without tariffs, on the basis of ordinary commercial information, and without physical checks unless there is a specific risk or intelligence basis, such as to prevent smuggling or other criminality. 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 green and red lane trade operating model was originally proposed by the UK as part of the Northern Ireland Protocol Bill. At that time, the UK government provided the below diagram outlining how the green and red lane system would work (Source: GOV.UK).
More details on this strand are available in paragraphs 9-27 of the Windsor Framework.
(ii) Trade disruption and difference in treatment of Northern Ireland.
Framed in the Windsor Framework as “Safeguarding Northern Ireland’s place in the Union”, a number of measures in the agreement are being implemented to put Northern Ireland on an equal footing with the rest of the UK in respect of areas such as the reduced availability of certain goods, treating Northern Ireland differently to the rest of the UK in areas such as tax and health services (access to medicines), the movement of people with their pets, and the ability to buy plants and seeds from GB at local garden centres.
The agreement establishes new arrangements in which UK standards and regulations will apply for essential retail trade and tax whilst at the same time preserving full and unrestricted access for Northern Ireland businesses to both GB and the EU Single Market. This is being heralded as unprecedented. Particularly in the area of tax, carving out EU VAT and excise rules is unique for a region that also has full access to the EU market.
Under the original Protocol, EU VAT and excise rules applied in Northern Ireland preventing the UK Government from applying VAT and excise changes UK-wide, with future EU rule changes likely to increase that divergence further.
To address this, the agreement secures legally binding changes meaning that Northern Ireland will benefit from the same VAT and alcohol taxes as apply in the rest of the UK. This means that, almost immediately, via changes to Annex 3 of the Protocol, the UK Government can bring forward legislation to ensure that Northern Ireland will be able to apply zero rates of VAT to the installation of energy-saving materials such as heat pumps and solar panels. A number of other changes in the area of VAT are referred to in paragraph 32 of the agreement. More details on strand two are also available in paragraphs 28-55.
(iii) The application of EU rules in Northern Ireland
The agreement refers to “Safeguarding sovereignty and closing the democratic deficit” in strand three and specifically the impact of the Protocol creating “a disproportionate set of burdens that impacted on Northern Ireland’s role within the UK internal market. That was not the basis from which any unique arrangements in Northern Ireland could command broad support from right across the community.”
The agreement introduces new arrangements to ensure Northern Ireland’s place in the UK internal market is protected and upheld and to prevent new EU goods rules applying in Northern Ireland “without cross community consent”. According to the agreement, the range of EU rules applicable in Northern Ireland is narrowed significantly “to less than 3 percent overall”.
These rules will apply only for as long as they “command democratic consent in Northern Ireland.” A new and further safeguard of democratic control is therefore being introduced via the so-called “Stormont Brake”. The application of this new break would involve the signing of a Petition of Concern by 30 or more members of the Stormont Assembly which would then trigger an immediate referral to the British government with a request for it to veto the EU law in question. MLAs must however demonstrate that their objection is not “trivial” in nature and that the new law will have a “significant impact” on people’s lives in the region. The decision to apply the brake would automatically suspend the operation of the EU law in question for a maximum of four weeks while the Petition of Concern is assessed by the UK-EU Joint Committee, a body set up under the Withdrawal Agreement to oversee the operation of the Protocol. Thereafter, the UK government would have an unequivocal veto – enabling the rule to be permanently disapplied.
Strand three also refers to a pragmatic form of dual-regulation. More details on strand three are available in paragraphs 56-72.
Various publications relevant to the agreement are available on GOV.UK and the EU Commission’s website as follows:-
The Windsor Framework - GOV.UK;
Sector specific explainers - GOV.UK; and
The Windsor Framework - EU Commission website.
Other EU-exit news
Change to UCC supplementary declarations submission date
From 1 January 2023, the union customs code (“UCC”) gives traders importing goods into Northern Ireland, that use simplified declarations, until day 10 of the month following import to submit their supplementary declarations. Traders that use the trader support service duty deferment account (“DDA”) or that are already submitting supplementary declarations by the fourth working day of each month do not need to make a change.
For traders that file declarations through the customs declaration service (“CDS”) after the fourth working day, the customs duty and import VAT due from the trader’s DDA may not show on the supplementary deferment statements. Payment may therefore be taken in the following month. Traders must ensure they have sufficient funds in their bank account for this payment to be made and are also advised that they may be charged interest.
Traders should check that their DDA limits are sufficient before making declarations. Traders can make current month increases by using the CDS deferment top-up facility. It is important to check that any top-ups are showing against the account limits before making the declaration. Read the full guidance on how to use your Duty Deferment Account.
Improvements to transit guidance
Traders moving goods under the common transit convention (“CTC”), also known as ‘transit’, are advised of a number of changes made to HMRC’s online guidance. Transit is a customs facilitation that allows businesses to easily move goods across multiple borders, without customs checks taking place at each border crossing. The Transit GOV.UK guidance has been refreshed, with improvements including a new landing page, step-by-step routes and simpler navigation.
Phase 5 of new computerised transit system phase 5
The UK remains a member of the Convention on a common transit procedure. Under its terms, all members must move to phase 5 of the new computerised transit system (“NCTS”), a new version designed to have improved functionality, by the end of November 2023.
HMRC will be switching over to phase 5 of the NCTS from phase 4 on 16 November 2023. All parts of the UK, including Northern Ireland, will be switched over at the same time. HMRC is beginning a programme of monthly updates containing more details about the switch over which will be published on GOV.UK.
Miscellaneous updated guidance etc.
The latest guidance updates, and publications relevant to EU exit are as follows:-
Reference document for authorised use: eligible goods and authorised uses;
Reference documents for The Customs (Reliefs from a Liability to Import Duty and Miscellaneous Amendments) (EU Exit) Regulations 2020;
Safety and security requirements on imports and exports;
Apply for a Binding Tariff Information decision;
Apply for an Advance Tariff Ruling;
CDS Customs Clearance Request Completion Instructions for Inventory Exports;
CDS Declaration Completion Instructions for Imports;
CDS Declaration Completion Instructions for Exports;
Reference Document for The Customs Tariff (Establishment) (EU Exit) Regulations 2020;
Reference Documents for The Customs (Tariff Quotas) (EU Exit) Regulations 2020;
Reference document for authorised use: eligible goods and authorised uses;
Notices made under s32A of the Taxation (Cross-border Trade) Act 2018;
Reference documents for The Customs (Reliefs from a Liability to Import Duty and Miscellaneous Amendments) (EU Exit) Regulations 2020;
Get authority to use another trader's deferment approval number in Northern Ireland;
Tell HMRC about business partners when registering for an Excise scheme;
Import alcohol into the UK;
Receiving, storing and moving excise goods; and
Import tobacco products into the UK.