News & Events
So, we are just over one month post Brexit. Undoubtedly, many of you have experienced delays in receiving products/goods coming from the UK, both personally and professionally, due to the delays at both the UK and Irish ports. But what are the final VAT consequences from trading with the UK, now that everything has settled down and the plains are clearer from a VAT perspective.
- Pre 1 January 2021
Generally speaking, prior to 1 January 2021, trading with mainland UK (“The UK”) was relatively straight forward. There were no customs or duties issues to consider. Goods generally flowed through the ports without much delay. Whether you were providing a service or a good to a UK VAT registered customer in the UK, generally speaking, you obtained their UK VAT number, you zero rated your invoice, included the relevant self-accounting wording on it and shipped the goods or provided the service with no further worries. Of course, there were exceptions to that general rule, which I do not propose going into in this article.
- Post 1 January 2021
Suddenly, BREXIT finally happens and there has been very little guidance issued by government or Revenue on the lead up to it, given the inherent uncertainties right up the last few days of December 2020. The way an Irish business interacts with its UK customers has changed and there has been very little advice circulated since then. A general overview of some of the changes to how an Irish business interacts with the UK are set out below. These are the general rules and there are exceptions to those rules as set out below.
- The UK’s Status for VAT purposes
As of 1 January 2021, the UK is deemed a “3rd country” for VAT purposes. In other words, it is now a country that is located outside of the EU and should be treated as such for VAT purposes. Therefore, when dealing with UK customers, you should deal with them in the same way you do any other country outside the EU, i.e., the USA, China, etc. I appreciate that many of you may not have dealt with suppliers/customers from outside the EU in the past or given the current COVID-19 situation have not yet had cause to interact with the UK yet in 2021, but the below should provide you with the relevant information to deal with the changing VAT aspects now in place.
- Service providers
- Supply of services to VAT registered customers in the UK
As of 1 January 2021, under the general place of supply rules for services provided to a “business” customer (i.e., registered for VAT or VAT equivalent) outside the EU, i.e., in the UK, by an Irish VAT registered person (individual/company) that supply is outside the scope of Irish VAT.
The supplier does not apply Irish VAT to the invoice, and they are no longer required to include the customer’s UK VAT number on their invoice, nor are they required to include the wording on the invoice regarding the customer’s requirement to self-account for VAT in their country under the relevant EU directive. It is still important, however, that you confirm that the customer is VAT registered and obtain a copy of their VAT number for your own records and you must obtain proof of their establishment outside the EU.
- Supply of services to Non-VAT registered customers in the UK
Under the general place supply of services rules, where a service is provided by an Irish established business to non-VAT registered customers outside the EU, Irish VAT is required to be charged at the applicable Irish VAT rate. There are exceptions to this general rule where the supply is deemed to be outside the scope of Irish VAT as follows:
- 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.
Those services in italics above are subject to the “use and enjoyment” provisions (not covered in this article).
In order for the above exceptions to apply, you are required to obtain proof that the customer is outside the EU.
If you require any further details in respect of these excepted services above, please let us know.
- Goods providers
- Supply of goods to VAT registered customers in the UK
The supply of goods to the UK is now deemed an “export” for VAT purposes, i.e., a supply of goods directly dispatched to a destination outside the EU. The zero rate of Irish VAT applies to all exports. Therefore, you would be required to apply Irish VAT at zero percent.
It is best for your customer to be deemed the importer on record in the UK and they would be required to account for and discharge any UK customs or VAT liabilities. You would still apply the zero rate of Irish VAT to your invoice.
However, where you are deemed the responsible person for importing the goods for UK customs and VAT purposes, you would therefore be liable for customs and UK VAT on import into the UK (for examples deliveries made “delivered duty paid” (DDP)). Postponed accounting for import VAT has been introduced in the UK which would allow you to effectively “self-account” for the VAT rather than pay on import.
You would be required to register for VAT in the UK and charge UK VAT on your supply to the customer as the supply will be deemed a UK supply for UK VAT purposes. Your freight carrier can handle the customs and VAT issues on your behalf in the UK and potentially alleviate the requirement to register for VAT in the UK, however, we understand that most are not taking on that responsibility. This is mainly for 2 reasons,
- they take on joint liability with the UK authorities in respect of the liabilities due and they are not willing to take on this additional responsibility, and
- the administrative burden to do so is too great for them to take on without hiring a significant number of additional staff.
We understand that some freight carriers are taking on this responsibility, but we have not yet been informed of which ones and we are in the process of trying to identify these.
Where you are required to take responsibility for the import, and your freight carrier will not handle it on your behalf, currently in order to get your goods through customs in the UK, you must have a base in the UK and have a UK EORI number. As such, you would be required to either register a branch in the UK to deal with these issues or incorporate a related company in the UK. This will undoubtedly raise other tax related issues in respect of UK corporation/income tax, potentially UK payroll, etc. Please let us know if you have any queries in this regard.
The Irish supplier of exported goods must ensure the goods have left the EU and hold the relevant evidence on file.
- Supply of goods to Non-VAT registered customers in the UK
As mentioned in section 2.3.1, the zero rate of Irish VAT applies to all exports.
The details set out in respect of customs and UK VAT in section 2.3.1 will also apply to the supply of goods to non-VAT registered customers in the UK. As such, the Irish supplier will be responsible for the UK customs and VAT on import and they may be required to charge UK VAT on their supply to their UK based customer. The previous distance selling (e-commerce selling of goods to non-VAT registered customers) threshold of £70,000 no longer applies.
- Import of goods from the UK by VAT registered Persons
The importation of goods into Ireland from the UK will now be liable to Irish customs and VAT. The person responsible for these will depend on who is the importer on record.
Where the Irish customer is the importer on record, they will be liable for the Irish customs and VAT on import. An EORI number will be required in Ireland in order to “import” the goods. Irish Revenue have introduced “postponed accounting” for VAT in respect of imports by VAT registered entities. This allows for the VAT registered customer to “self-account” for the VAT in their VAT return relating to the period in which the goods are imported. This means, that based on the current VAT3 a business with 100% recoverability would include VAT on the import in both T1 and T2 on their VAT return and therefore there would be no cash outlay for the business. The VAT Return and Annual Return of Trading Details (VAT RTD) will be amended to coincide with the introduction of postponed accounting. These returns will require additional details relating to postponed accounting.
Where the UK supplier is the importer on record, they will be liable for Irish customs and VAT on import. They would be required to apply Irish VAT on their supply to you as the supply would be deemed a domestic supply in Ireland following the first importation into the EU.
This section focuses only on what is expected in an Irish VAT reporting context in respect of dealings with Northern Irish businesses. We have not considered any obligations in respect of transactions between Northern Ireland and the rest of the UK.
The Revised Protocol on Ireland and Northern Ireland was issued by the EU and applies from 1 January 2021. In terms of supplies to and from Northern Irish VAT registered businesses post-Brexit, the following applies:
- Transactions involving movements of goods between Northern Ireland and EU Member States (including Ireland) will continue to be considered as intra-EU sales/acquisitions.
- All EU rules applying to cross-border supplies and movements of goods between Member States will continue to apply between Northern Ireland and EU Member States, that is, intra-EU supplies and acquisitions of goods and distance sales regime for goods to and from Northern Ireland.
The above will increase the importance on reporting accuracy and the need for systems upgrades to reflect the Northern Ireland position i.e., whether goods have entered the Republic of Ireland from Northern Ireland or from the rest of the UK, as differing rules will apply. It is also important to note that these rules relate only to goods and not services.
You will note that there are now increased complexities in trading with the UK from a VAT perspective, never mind the delivery delays and customs/duties issues. The above sets out the general rules that apply in this respect, but we would urge you to obtain specific advice in respect of your supplies/acquisitions to ensure you are handling them correctly.