VAT on supplies between Great Britain and Northern Ireland from 1 August 2021

A review of EU exit legislation identified some issues that began at the end of the Brexit transition period which needed to be rectified to ensure that the UK VAT system continues to operate as required. The most important changes relate to the transport of goods between Great Britain (England, Scotland and Wales) and Northern Ireland (NI). We summarise the measures set out in new regulations which took effect from 1 August 2021.

The main measures (contained in The Value Added Tax (Amendment) (EU Exit) Regulations 2021 and The Value Added Tax (Miscellaneous Amendments and Repeals) (EU Exit) Regulations 2021) are as follows:

• The exit legislation inadvertently applied a zero rate to the transport, handling and storage of goods moving between GB and NI. This will now be removed, ensuring that these supplies are treated as domestic and standard-rated. The same VAT treatment will therefore apply for transport services in relation to goods moving between London and Edinburgh, or Cardiff and Glasgow, as to goods moving between GB and NI.
   
• The movement of own goods, used wholly or partly for non-business purposes, from GB to NI will be treated as a deemed zero-rated taxable supply. This is subject to the goods being removed within 12 months of when the business incurred VAT in GB, and will allow full recovery of the VAT charged on the initial purchase of the goods.
   
• The measures ensure that there will be no relief from VAT on movements of goods from NI to GB where this forms part of a supply from the EU to GB, with goods being transported through NI. The supplier of the goods must be VAT registered in the UK to pay the import VAT and make a UK VAT sale to the GB customer. This also ensures that low value goods sold from the EU to GB that are transported through NI have the same domestic effect and the same responsibility to register, even where the import VAT is relieved because UK supply VAT applies.
   
• The second-hand margin scheme will not be available for imports of goods sent in consignments valued at no more than £135 which are treated as supplied in the UK. Goods in the UK at the point of sale which are sold via an online marketplace will also not be eligible for the margin scheme because of the administrative complexities involved in establishing the profit margin on such transactions. HMRC states this aligns the treatment with imports of goods generally where the margin scheme does not apply and corrects an anomaly since 1 January 2021 where the margin scheme was available.
   
• The zero rate will be extended to include handling services in relation to international trains, whether the transport of the goods is carried out in international train areas or elsewhere on the rail network.
   
• It will be possible to correct understatements or overstatements of import VAT in relation to Postponed VAT Accounting (PVA) in line with the existing error correction procedures for output tax.
   
• VAT returns will be amended to reflect these changes and provide clarification on the content of boxes on the return. The measures also provide a power for HMRC to specify additional requirements in relation to the completion of the VAT return by way of a public notice.
   
• Businesses selling goods between GB and NI will be required to produce an import document which is the equivalent of a VAT invoice. The measure adds further details that should be included on the import document, to ensure consistency with the VAT invoicing rules. It also extends the requirement to produce an import document to EU suppliers sending goods to GB through NI.
   
• It will be possible to zero-rate supplies of motor vehicles from GB to NI which are intended for export, subject to certain conditions, including being required to be removed within a certain timeframe (6 or 12 months). Under EU exit legislation, these rules also apply to goods moved between GB and NI. As other EU exit legislation provides that any VAT paid in GB is offset against the VAT due on the goods entering NI, the zero rate is not required in respect of such movements. HMRC states that the change leaves consumers in the same position financially, and removes a potential revenue risk.
   
• Sellers of cars from NI to GB are required to account for VAT due when the goods enter GB (under Protocol arrangements), but the measures will reduce the period in which the vehicle has to be moved to GB to one month, to align (as closely as possible under the Protocol) with supplies of goods that do not move between GB and NI.
   
• Suppliers of goods moved between GB and NI are liable to account for the VAT due, and VAT-registered customers may recover the VAT charged, subject to the normal rules. The measures put beyond doubt that there are no circumstances in which the supplier may recover this VAT – only the customer in NI can do so.

Action points

Businesses need to ensure that their systems apply the correct VAT treatment to affected transactions from 1 August 2021, in particular to ensure that VAT is charged where the zero rate will no longer apply, and that new documentation is provided where required.

How BDO can help

For help and advice on any post-Brexit or international VAT issue,  please get in touch with Will Tipping.