VAT changes

Last updated 11 January 2021

VAT changes under Northern Ireland Protocol

From 1 January 2021, Northern Ireland (NI) continues to follow the EU’s VAT rules for goods. However, as the UK-wide VAT rules for services will apply to NI, NI VAT-registered businesses will be required to follow a dual VAT regime from 1 January 2021.

The UK continues to levy VAT and the rules relating to UK domestic transactions continue to apply to businesses as before Brexit. VAT procedures largely remain the same as those prior to 31 December 2020, but there are some changes to the VAT rules and procedures for transactions between the UK and EU member states.

This Institute and the NI Tax Committee, chaired by Alan Gourley, have been engaging with HMRC on various Brexit matters, including customs changes and the NI VAT regime throughout the course of 2020 and extensively on VAT in particular in recent months. We will continue to do so in 2021.

In addition to our ongoing discussions with HMRC, the Institute has also raised specific matters of concern in respect of the dual VAT regime with the Department for the Economy, the Irish Government, Revenue and the Directorate General for Taxation and Customs Union.

The Institute has produced guidance on what the VAT changes will mean for ROI and Northern Ireland, and these guides will be updated as more information becomes known. You can find these guides at www.charteredaccountants.ie/brexit.

In December, the UK government introduced legislation to Parliament (the Taxation (Post transition Period) Bill) which includes how customs, VAT, and excise duty will be dealt with in NI after 31 December 2020, amongst other matters. More guidance can be found in the UK’s policy paper: Accounting for VAT on goods moving between Great Britain and Northern Ireland from 1 January 2021.

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VAT registration requirements under the Northern Ireland Protocol

You are trading under the Protocol if you are VAT registered and either:

  • your goods are located in NI at the time of sale;
  • you receive goods in NI from VAT registered EU businesses for business purposes;
  • you sell or move goods from NI to an EU Member State.

You need to be identified within HMRC’s VAT system if you’re making transactions that fall within the Protocol.

A separate NI VAT registration number is not required. However, you’ll need to put an “XI” prefix in front of your VAT number when communicating with an EU customer or supplier (your invoices will show an XI number ahead of your VAT number - for example, XI 123456789 - instead of GB).

For suppliers, HMRC have confirmed that they are happy for you to include an XI and GB invoice on your supplier invoice but XI must be included for supplies to EU

You’ll be automatically identified as falling within the scope of the protocol if:

  • your VAT registered address has a BT postcode;
  • your VAT registration certificate shows a type of business that is not solely involved in the provision of services.

More information on this can be found on gov.uk

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Importing goods into Great Britain from EU

Movements of goods between GB and the EU (including Ireland) are treated as imports and exports from 1 January 2021. Prior to Brexit, such movements are treated as intra-EU dispatches or distance sales. 

For imports, the postponed method of accounting for import VAT should apply to goods imported into GB.  This means that import VAT will not be due at time goods are imported; instead it can be accounted for in the next VAT return. This will also apply when goods are imported from outside the EU and could result in significant cash flow savings for the importer.

This means that EU suppliers who move goods into GB might need to register for VAT in the UK.  Similarly, GB exporters moving goods into the EU, might need to obtain a VAT registration in that EU country. An exporter should zero-rate the sale of goods and retain documentary evidence that the goods have left GB i.e. they have been exported.

This treatment also applies for imports of goods into GB from outside the EU.

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Exporting goods into EU from Great Britain

VAT registered UK businesses will continue to zero-rate sales of goods to EU businesses. EU member states will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries. This means import VAT is due when the goods arrive in the EU.

Trading goods between Northern Ireland and the EU

For VAT registered businesses, the current VAT treatment should continue to apply to trade in goods between NI and Ireland (and the rest of the EU). The same processes and reporting requirements will apply. 

Supplies of goods from NI to Irish businesses for example should be treated as zero-rated intra-EU dispatches;

Supplies to consumers will use distance selling rules. This means that Irish VAT will need to be accounted for when the level of sales in Ireland exceeds the annual distance selling threshold.

NI can continue to claim any VAT incurred on goods in the EU through the EU’s VAT refund system.

The same treatment described above will apply to trade between NI and other countries in the EU.

If NI continues to follow EU VAT rules for goods, there are some changes being introduced in 1 July 2021 which NI will have to implement. New EU rules on VAT will abolish distance selling thresholds. Any VAT due on supplies to consumers located in the EU will need to be accounted for under a One Stop Shop. This means that NI businesses will need to charge VAT at the rate applicable in the customer’s country and account for it to the HMRC.

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Trading goods between Northern Ireland and Great Britain

Trade in goods between NI and GB will be treated as imports and exports for VAT purposes.

The seller will continue to charge its customers VAT and should show this on its invoices. The VAT charged will be accounted for as output VAT on the VAT return in the same box as it is now. The seller will not be able to claim this back as input VAT. The customer can reclaim the VAT as input VAT.

There are a small number of exceptions to this where goods are

  • declared into a special customs procedure when they enter NI or GB
  • currently subject to domestic reverse charge rules including on sales of gold or gas and electricity to a VAT registered business
  • subject to an Onward Supply procedure
  • sold by an overseas seller through an online marketplace (the online marketplace will be liable to account for the VAT on these goods).

More information on gov.uk

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Distance sales of goods

B2C sales of goods from ROI to GB

The rules that apply for Business to Consumer (B2C) sales of goods will be impacted by Brexit.

From 1 January 2021, ROI companies that currently charge Irish VAT on B2C supplies of goods to GB consumers should not charge Irish VAT on these supplies. 

Currently the distance sales threshold for VAT registration for B2C sellers of goods from Ireland into the UK is £70,000.  The threshold will no longer apply from 1 January 2021. 

Under new rules, Irish sellers will be liable to charge UK VAT on goods shipped from Ireland to consumers in GB in consignments of £135 or less. 

For consignments with a value over £135, import VAT and potentially customs duty will be due. The Irish supplier will need to consider whether they arrange for payment of the UK VAT and custom duty or if their customers should be responsible for the payment of any customs duty and VAT arising in the UK. 

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B2C sales of goods from GB to ROI

For the distance selling of goods B2C from GB to ROI, those businesses will continue to have an obligation to register and pay Irish VAT on their supplies to Irish customers. Those companies will also need to complete the necessary import declaration in respect of goods imported into Ireland.

B2C sales of goods from ROI to NI

For B2C sales from ROI into NI, the distance sale rules will remain the same (until the EU rules change on 1 July 2021). 

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VAT registration requirements

You are trading under the Protocol if you are VAT registered and either:

  • Your Goods are located in NI at the time of sale
  • You receive goods in NI from VAT registered EU businesses for business purposes
  • You sell or move goods from NI to an EU member state

You need to be identified within HMRC’s VAT system if you’re making transactions that fall within the Protocol.

A separate NI VAT registration number is not required.  However, you’ll need to put an “XI” prefix in front of your VAT number when communicating with an EU customer or supplier (your invoices will show an XI number ahead of your VAT number - for example, XI 123456789 - instead of GB)

For suppliers, HMRC have confirmed that they are happy for you to include an XI and GB invoice on your supplier invoice but XI must be included for supplies to EU

You’ll be automatically identified as falling within the scope of the protocol if your:

  • VAT registered address has BT postcode
  • VAT registration certificate shows a type of business that is not solely involved in the provision of services

More information on this can be found on gov.uk

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Business to Business (B2B) services and Business to Consumer (B2C) services

Supply of services in 2021

While the NI Protocol means NI will remain aligned with EU rules for trade in goods, NI will continue to follow UK rules for services.

After the transition period, if you supply services to or receive services from the UK (including NI) and vice versa, different place of supply rules for VAT on services may apply. 

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B2B services -ROI

The VAT treatment applicable to the supply of most business-to-business (B2B) services between Ireland and the UK will largely remain the same (i.e. the place of supply is the place where the business receiving the services is established).   Using the example of an ROI business, if you receive services from a company based in the UK after the transition period, in general, Irish VAT will be due on the services.  If you provide services to a company based in the UK after the transition period, in general, UK VAT will be due on the services.

B2C services - ROI

Business to consumer (B2C) services, in general, the place of supply is the place where the supplier is established. However, many services supplied for example from Ireland to non-business customers outside the EU will not be subject to Irish VAT.

Subject to the Use and Enjoyment provisions, VAT is not due on the following services supplied to non-business customers established outside the EU:

  • Transfers and assignments of copyrights, patents, licences, trademarks and similar rights.
  • Advertising services.
  • The services of consultants, engineers, consultancy firms, lawyers, accountants and other similar services, as well as data processing and the provision of information.
  • Obligations to refrain from pursuing or exercising, in whole or in part, a business activity or a right.
  • Banking, financial and insurance transactions including reinsurance, except for the hire of safes.
  • The supply of staff.
  • The hiring out of movable tangible property, with the exception of all means of transport.
  • The provision of access to, and of transport or transmission through, natural gas and electricity distribution systems. This includes the provision of other services directly linked thereto.
  • Telecommunications services.
  • Radio and television broadcasting services.
  • Electronically supplied services.

Services not included in the list above, supplied to a non-business customer outside the EU are subject to Irish VAT at the appropriate rate.

More information on B2B and B2C supplies of services is available in charging VAT on services and on Revenue.ie.

B2B services – UK

If a UK business buys services from outside the UK, the reverse charge applies. VAT will be accounted for on the UK VAT return and a simultaneous credit for the amount of VAT due will be taken (assuming you have full VAT recovery).  

See gov.uk for more guidance.

B2C services – UK

If a UK business sells service to customers in the EU, they will need to charge VAT at the usual rate.

See gov.uk for more guidance.

Exceptions in UK

There are different rules for some types of service, including:

  • hiring transport
  • land and property services
  • ‘electronically supplied services’ where there’s nobody directly involved in providing them (for example web hosting or music downloads)
  • events
  • restaurant or catering services

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VAT on accounting services

Business to Business (B2B)

The VAT treatment on the supply of most B2B services between the UK (including NI) and Ireland and other countries will broadly remain the same from 1 January 2021. For B2B, the place of supply is the place where the business receiving the services is established. See Revenue guidance and HMRC guidance.

Business to Customer (B2C)

From 1 January 2021, Irish VAT should not arise on the supply of certain services such as accounting legal, and consultancy work to non-business customers in GB or NI. 

If a UK business supplies accounting services to non-business consumers outside of the UK, the services are supplied where the customer belongs and are therefore outside the scope of UK VAT. See gov.uk for more information.

Mini-One-Stop-Shop (MOSS)

MOSS returns can be used when telecommunications, broadcasting and electronic services are being supplied to private customers (B2C).  From 1 January 2021, the MOSS scheme will no longer apply in respect of UK VAT charged on B2C supplies to UK consumers, and Irish companies engaged in these supplies will need to VAT register in the UK post Brexit in order to account for the UK VAT due on such supplies. 

You can find guidance on Revenue.ie

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EU VAT refund system

Prior to the end of the transition period, a UK business could recover VAT incurred in other EU countries electronically. However, UK businesses are no longer able to use that system.

Instead, UK businesses can claim refunds of VAT from EU member states, but it will need to be done using the existing refund system for non-EU businesses.

The refund system process varies across each EU member state, so businesses will need to check the exact requirements in each EU country where they incur VAT.

NI businesses trading in goods can continue to use the existing EU VAT refund system.

Further information:

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Key VAT system changes- Northern Ireland and Ireland

Under the Protocol, transactions in goods between NI and EU businesses and consumers will continue as they do today. The same processes and reporting requirements will apply. However GB will be outside the EU's VAT rules.

You may need to update your VAT system to cope with the changes that came in on 1 January 2021. Below are some actions you might consider implementing:  

  • Ensure that digital records and functional compatible software are updated with new transaction treatments where relevant
  • Understand Brexit’s impact on master data, invoicing templates and reporting
  • Ensure transactions are coded correctly
  • Ensure a distinction exists in ERP systems between GB and NI
  • Intrastat declarations should only include the relevant EU transactions (i.e. between NI and ROI)
  • VIES reports should only include the relevant EU transactions (e.g. no GB supplies)
  • EU VAT refund (EVR) system will no longer apply for VAT incurred in the UK from 31 March 2021 (similar VAT reclaim available under the 13th Directive)
  • From a UK perspective, you must ensure compliance with Making Tax Digital. 

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VAT reporting obligations in 2021

VAT reporting obligations currently apply to trade between EU Member States. After the transition period ends, these obligations will no longer apply to trade with GB. Under the Protocol, transactions in goods between NI and EU businesses and consumers will continue as they do today. The same processes and reporting requirements will apply.   

For example, in ROI, you will not have to report the following information for trade with GB

  • Details of supplies in goods and services to VAT registered businesses in GB on a VIES return
  • Details of sales to or purchases from GB on Intrastat returns.

For example, in ROI, you will have to report the following information for trade with NI:

  • Details of supplies of goods (but not services) made to VAT registered businesses in NI on a VIES return
  • Sales of goods to NI and purchases of goods from NI on Intrastat returns.

Guidance can be found on Revenue.ie

NI businesses will also have to follow the same rules as ROI. 

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Guidelines for VAT Registration - with Postponed Accounting

Accountable persons who are registered for both VAT and Customs & Excise (C&E) at 11:00pm on 31 December 2020 will be given automatic entitlement to Postponed Accounting. There is no requirement for these traders to apply for Postponed Accounting. VAT registered traders who are not registered for C&E at 11:00pm on 31 December 2020 and who wish to import goods into Ireland from that point in time must register for C&E. Once registered for C&E, they will be given automatic entitlement to Postponed Accounting.

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