NI protocol
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NI VAT part 2: Trading under the NI protocol

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The Northern Ireland Protocol creates a unique situation for trading in goods. Jason Croke provides some clarity on the many potential opportunities.

15th Oct 2021
VAT Director Rayner Essex
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Where to start

First we must define the population of businesses that fall under the Northern Ireland Protocol. This is any business that:

Reflecting on the basic supply of goods rules, VAT is driven by where the goods are at the time they are sold. Goods held in a Northern Ireland warehouse are deemed to be in Northern Ireland (EU) rather than the UK as a whole.

It is important to appreciate the difference between Great Britain (GB) and the United Kingdom (UK) when referring to movement of goods. Great Britain (England, Scotland & Wales) is not part of the EU for VAT purposes, whereas Northern Ireland is part of the EU for VAT purposes only, and part of the United Kingdom for everything else, hence the GB/NI terminology.

Also, remember that the NI Protocol concerns itself only with goods, not services. For services, Northern Ireland remains part of the UK and follows UK VAT rules in regard to services. This article does not focus on services because those rules are already well established.

There are five different situations to consider:

1: Goods going from Great Britain to Northern Ireland

Generally, the movement of goods from GB to NI customers are treated as domestic supplies, that is, the GB business would charge UK VAT to the NI customer, whether the customer is a business or a consumer. The same treatment applies whether the recipient is a business or consumer. 

If a GB business is moving its own goods to NI (perhaps to service the NI market quicker or to hold stock in NI ready for onward supply into Ireland/wider EU), then the movement of “own goods” requires the GB business to declare output tax on their UK VAT return and reclaim the same amount as input tax. In effect, the GB business “sells” the stock to itself. 

As the GB business would be holding stock of its own goods in NI, then the GB business should ensure it also has an XI EORI number, as it will need the XI EORI number if shipping those NI located goods into the EU/Ireland.

2: Goods going from Northern Ireland to Great Britain

These sales are treated as a normal, domestic (UK) supply, that is, goods moving from NI into GB will follow UK VAT rules. In effect, if you think of the NI Protocol as a barrier, the EU needs to protect its single market, so movement of goods from NI into GB do not disturb the EU’s single market, whereas goods moving from GB into NI and then into Ireland could disturb the single market protections/controls.

3: Goods going from Northern Ireland to Ireland/EU

Goods in Northern Ireland at time of sale are treated as if they are within the EU, so all the pre-Brexit VAT rules we know and love apply. Sales to Northern Ireland customers (B2B or B2C) are domestic NI sales and subject to UK VAT rates.

Sales to Ireland or European Union member states follows EU rules. Therefore, sales to EU businesses (B2B) would see the NI seller obtain the EU customers’ VAT number, reverse charge/zero rated intra-EU movement, NI supplier submits an EC Sales List (ECSL).

Sales to consumers fall under the new (since July 2021) distance selling rules, now titled “One Stop Shop” with an obligation to register for OSS once the €10,000 threshold has been met. See my earlier article on how businesses which operate under the NI Protocol can register for Union One Stop Shop.

4: Goods going from European union to Northern Ireland

Goods moving from the EU (Ireland/wider EU) into Northern Ireland, also follow normal EU rules. An NI business buying goods from the EU would be able to acquire those goods as zero-rated arrivals into NI by giving the EU supplier their XI EORI number/NI address. The goods would enter NI without VAT and the NI business would reverse charge on their UK VAT return.

5: Goods going from GB to EU via NI

Where goods are sold from a GB seller to an EU customer, and the goods are subsequently sent by the seller from GB, via Northern Ireland, to the EU customer, the process is similar to accounting for a direct movement from GB to NI. The seller should zero rate the goods on export to the EU, but also is liable to account for the import VAT on the movement.

The GB seller includes the import VAT in the price it charges to the EU customer, to ensure it is paid by the customer. The import VAT charged will then be accounted for as output VAT on the UK VAT return by the seller. Having paid the import VAT to the seller, the EU business may recover it using the EU VAT refund system. The UK seller will not be able to claim this back as input VAT as it will have been paid to them by the customer rather than incurred by their business.

Where goods are declared into a special customs procedure known as onward supply relief, import VAT will not be due when the goods arrive into NI and the EU customer should account for acquisition VAT (B2B).

Further reading

HMRC has provided guidance on all of the above scenarios.

In my next article I will address various other matters relating to moving goods to, or from, Northern Ireland.

Jason Croke will be speaking more about VAT and Brexit at AccountingWEB Live Expo on 2 December 2021. You can register now to attend Jason’s ‘Business Tax: VAT and post-Brexit update’ session today.

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