Brexit, 3 Months On…

Over 3 months on from the UK’s departure from the EU and the practical effect of Brexit is being felt by Irish businesses as they tackle new barriers to trade between ROI and GB.

We have set out below some high-level points to give a flavour for some practical customs and VAT aspects of this new trading environment and why it is important that businesses continue to review your activities from a customs and VAT perspective to help mitigate the cost of Brexit:

1. EU-UK Trade and Co-Operation Agreement (“TCA”):

  • Although the UK-EU Trade and Cooperation Agreement (“TCA”) agreed on 24 December 2020 was hailed as a free trade agreement creating a “free trade area of unprecedented ambition”, this “free trade” only applies to a very limited category of goods which are deemed to originate in the UK and the EU. The specific rules to determine origin under the TCA are complex and difficult to apply in practice, particularly for businesses with global supply chains. In some cases, we have seen that the resource required to prove preferential origin can outweigh the benefits of claiming it.
  • Also, a common misconception is that the TCA prevents all customs obligations arising on related trade. That is not the case; customs obligations arise for Irish businesses trading in goods with GB since 1 January 2021. As a result, it is vital that appropriate time and resource is committed to implement certain actions to continue to trade effectively with GB from 2021 onwards.

2. Northern Ireland:

  • The NI Protocol has been the subject of much media attention of late as it effectively created a customs and regulatory border between GB and NI from 1 January 2021.
  • Under the current terms of the NI Protocol, there are no significant customs or VAT changes to the trade of goods between NI and ROI post-Brexit, which means:
  • Traders can move products directly between NI and ROI without the need to submit customs imports or exports declarations or pay customs tariffs on such movements, and
    • Traders can move products directly between NI and ROI without the need to submit customs imports or exports declarations or pay customs tariffs on such movements, and
    • There is no change in the VAT treatment of supplies of goods directly to/from NI, with the small exception that the NI business’ XI VAT number must be used for this intra-EU trade.
  • The NI Protocol in its current form is to be in place for a minimum of 4 years from 1 January 2021 when it will then be voted on by the NI Assembly. If the NI Protocol is voted against, there will be a 2-year grace period before it can be removed.

3. Incoterms:

  • One of the most important new steps in trading in goods with GB is agreeing the terms of an international sales contract with the GB counterparty. The trade term (“incoterm”) must be agreed as it defines where responsibility lies between the buyer and the seller.
  • The incoterm for a supply has both practical and commercial implications. For example, a UK supplier selling under a Delivery Duty Paid (“DDP”) term would be responsible for exporting from GB and importing into Ireland (with all related duty formalities) whereas a UK supplier selling under an Ex-Works (“EXW”) term would not have any customs obligations as all export and import obligations would fall on the Irish customer.
  • Given the significant expense of agreeing unfavourable terms, it is essential that Irish traders agree appropriate terms with their GB suppliers and/or customers that ideally strike a balance between avoiding unnecessary costs and continuing good relations with these parties.

4. Customs Procedures:

  • Where it is not possible to claim preferential origin for goods traded with GB (as per Point 1 above), Irish traders should consider the possibility of applying customs procedures which may limit or avoid customs duties arising on such goods in certain circumstances. There is a wide range of customs procedures which can be applied by Irish traders for goods moved to/from GB, including Inward Processing Relief, Transit Procedure, Returned Goods Relief, Low Value Consignment Relief, etc.
  • In practice, our experience is that the issues in gathering the necessary evidence to satisfy the conditions for certain procedures make it near impossible to apply the procedure in practice (e.g. Returned Goods Relief for a used car imported from GB). However, it is worthwhile considering whether it would be possible to apply any customs procedures to your activities and what benefits (if any) could be availed of.

5. Registrations:

  • An Irish trader must have a valid Economic Operators Registration and Identification (“EORI”) number in order to export goods to GB. Similarly, the Irish trader requires a GB EORI and VAT number if it intends to import goods into GB for onward resale. If the Irish trader is not established in the UK, it may require the assistance of an indirect customs representative, which can be difficult to obtain in practice.
  • Irish traders must register under the Registered Exporter (“REX”) Scheme in order to certify the preferential origin of goods exported to GB where the consignment is valued at €6,000 or more. No REX registration is required where the consignment value is less than €6,000.

6. Postponed VAT accounting:

  • Import VAT may arise on goods imported into ROI from GB, which is normally payable upfront at the point of entry. However, new postponed VAT accounting (“PVA”) rules provide that the Irish trader can self-account for (i.e. charge itself) Irish VAT on the imported goods and include that VAT amount in Box T1 of its VAT return. This VAT amount can be included in Box T2 of the same VAT return if the goods are used for its VATable activities (i.e. the transaction should be VAT cash flow neutral).
  • From a statistical reporting perspective, the value of the imported goods (i.e. net plus carriage, insurance and freight) should be included Box PA1 and excluded from Box E2 of the Irish trader’s VAT return.
  • To apply PVA, the import declaration filed for the goods must indicate that PVA will be applied. This is a vital point, which we have seen is not being applied correctly in practice.

In light of the above points, it is vital that Irish businesses are aware of the customs and VAT implications of trading in goods with GB and consider what practical actions (if any) are required to mitigate the cost of Brexit.

7. Electronic VAT reclaim

The grace period of 3 months to reclaim all deductible UK VAT incurred in 2020 through the EVR mechanism has now passed. While an Irish taxpayer can continue to file an EVR to reclaim UK VAT incurred on goods purchased in NI (subject to normal VAT recovery conditions), UK VAT incurred on costs in GB or on services in NI can only be recovered through the Thirteenth Directive reclaim mechanism. The reclaim mechanism is a paper-based process and there is no strict obligation on the UK to provide the VAT refund within a specific timeframe

There are numerous supports provided by InterTrade Ireland, Sligo LEO, Enterprise Ireland and many other bodies to assist Irish businesses dealing with the complexities arising from Brexit. In particular, Gilroy Gannon is delighted to be included on the InterTrade Ireland panel of experts for the Brexit voucher scheme and have advised a large number of companies from a wide variety of industries on the customs and VAT implications of Brexit. Further details on the InterTrade Ireland Brexit voucher scheme can be found using the following link;

Please contact us today to discuss Brexit and how the Gilroy Gannon tax team can assist.

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