Transactions with UK suppliers and customers post Brexit – VAT and Import Duties

No doubt you have read about the delays and increased administration in relation to trading with the UK since 1^st January.  It is not only trading in goods that are affected, as changes to the treatment of services could also apply.  We have set out below a high level commentary on the primary changes and the information you need to be aware of to try to make the changes as seamless as possible.  In addition reporting of UK supplies in EU statistical returns (e.g. VIES, Intrastat) should not now be required.

Goods into Ireland:

Imports into Ireland from the UK are since 1^st January 2021 subject to import duties and VAT, where applicable.  Import duties will depend on the commodity code and the origin rules.  Non-UK originating goods entering from the UK will pay the tariff applicable to the origin country.

The responsibility for accounting for import duties and VAT will depend on who, the customer or supplier, is responsible for the importation and the transport terms.  This has resulted in contracts and transport terms being reviewed and negotiations as Irish customers don’t wish to incur import duties, irrecoverable VAT (although most businesses should be in a position to recover the VAT) and additional administration costs.  Equally UK suppliers wish to avoid the additional costs and also requiring to register for VAT in Ireland.

As a cash flow saving measure postponed accounting should be available for most businesses (must be VAT registered, have an EORI number and is subject to conditions including being tax compliant), whereby rather than physically having to pay the VAT, the VAT is accounted for in the VAT return as a sale with a simultaneous and corresponding credit as a purchase, subject to the recoverability.  In order to avail of postponed accounting a specific code must be included on the import declaration.

Each import must be declared to Revenue using a customs import declaration which is submitted electronically using Revenue’s Automated Import System.  Registration for Customs & Excise is required and an EORI number (Economic Operators Registration and Identification number) obtained.  Imports may also require a licence, permits and be subject to regulatory checks. 

Goods to the UK:

All goods entering the UK (excluding Northern Ireland which remains within the EU for supplies of goods) from the EU will be treated as imports from third countries (except for most arriving from Northern Ireland). Customs obligations apply, declarations have to be lodged and guarantees required for potential or existing customs debts. Import duties may not apply depending on where certified as originating from.  The rules can be complex and specific advice should be obtained.  Also the UK distance sales threshold for supplies to consumers rather than businesses no longer applies resulting in certain Irish businesses now having to register for UK VAT.

From 1^st January 2021 the UK has also introduced postponed accounting for import VAT for UK VAT registered importers.  To benefit from postponed accounting, the importer must include its UK VAT registration and also its GB EORI on the customs declarations. In the absence of either of these, UK import VAT would be collected at the port of entry. Imports may also require a licence, permits and be subject to regulatory checks.

For Irish VAT purposes the zero rate of VAT applies to all supplies of goods that are transported directly by or on behalf of the supplier to a destination outside the EU VAT area and the supply of goods that are to be dispatched or transported directly outside the EU VAT area, by or on behalf of the purchaser of the goods, where that purchaser is established outside the State. Importantly you must have proof that the goods have physically left Ireland.  Revenue have issued guidance as to the documentation that is required to be retained as evidence of export.

Services to the UK and Northern Ireland:

The Irish legislation provides that the general place (exceptions can apply for services connected with immovable property and also use and enjoyment) of supply rules are in respect of supplies to other businesses, and for certain services to private individuals, who are based outside the EU, the customer’s address and no Irish VAT applies.   Sufficient evidence and proof that the customer is carrying on a business must be obtained.   The UK VAT number for the UK business should be obtained, if not obtained then while it is still possible to not apply Irish VAT where other information is available to show that the customer is carrying on a business, it is important that the UK customer is aware that it may have to account for the VAT (see reverse charge comments below).

Consideration is required as to whether there is an obligation to register for UK VAT. Most business to business supplies will be subject to the reverse charge procedure and therefore no requirement for the Irish supplier to register in the UK.  If the reverse charge doesn’t apply then the Irish supplier should be required to register for UK VAT and charge its customers UK VAT, the UK VAT registration threshold only applies to UK established businesses. 

e-Commerce sellers and marketplaces in the UK

The UK has introduced a series of VAT reforms around the e-commerce industry for the sale of physical goods to private consumers (so-called B2C supplies). These largely mirror those to be implemented in the EU from 1st July 2021 as part of its 2021 cross-border e-commerce changes. The key changes are as follows:

• Marketplaces will be liable to account for VAT on sales of goods sold through their platforms in certain situations.

• The UK low value import threshold of £15 has been abolished.

• Direct B2C sales of goods associated with an import into the UK (excluding Northern Ireland) under £135 in value are subject to VAT at the time of sale, as opposed to at the time of import. The non-established seller, or marketplace if one is involved in the sale, would be required to charge, collect and remit VAT via a UK VAT registration. There is a nil VAT registration threshold in the UK for business which do not have an establishment in the UK.

Businesses who returned their UK sales via the MOSS (Mini One Stop Shop) scheme in Ireland should register for UK VAT purposes from 1st January 2021, to remit UK VAT due on their supplies of digital services.

Suppliers should also consider any potential changes around “use and enjoyment” provisions given that the UK is now treated as a non-EU jurisdiction for VAT purposes. The use and enjoyment provisions can change the country in which VAT is due based on where the service is actually used and enjoyed.

Services from the UK into Ireland:

The place of supply rules for Irish businesses receiving services from UK suppliers should mostly not be affected as the rules apply to services received from suppliers based abroad, not distinguishing between EU and non-EU countries.  The Irish business is required to apply the reverse charge mechanism (same as the postponed accounting treatment) mainly, however there are exceptions (e.g. certain services related to immovable property) where the foreign service provider is required to register in Ireland and charge Irish VAT. There are some changes for supplies by UK providers to non-business customers. 

*The information in this article is for general purposes only and is not to be relied upon.  Specific advice can be provided subject to a formal engagement.