New Year’s Day this year was also the day that the Brexit transition phase was left behind and we entered a new age of a European Union without the UK. The EU-UK Trade and Cooperation Agreement, signed on 30th December 2020, has resulted in changes to how businesses and sectors operate in the UK. The biggest difference for our clients is the impact on Value Added Tax (VAT).
The new VAT landscape between ROI, NI and GB
The broad strokes of the agreement are that the rules of trade with a non-EU country (referred to as a “third country” by Revenue) now apply to any trade (goods or services) with Great Britain. Northern Ireland, which is part of the United Kingdom but not part of Great Britain, has specific rules as follows: it will continue to be treated as a European member state with regard to VAT on goods, but as a non-EU country with regard to VAT on services.
Practically speaking, this means that:
- Any supply or movement of taxable goods between Ireland and Great Britain are subject to the VAT rules on imports and exports.
- You no longer report details of trade with the UK (excluding Northern Ireland) on the Intrastat system or VAT Information Exchange System (VIES).
- You must report details of trade with Northern Ireland on the Intrastat system and VAT Information Exchange System (VIES).
- Agreed EU simplifications such as triangulation no longer applies to transactions involving Great Britain.
- The Mini One-Stop-Shop (MOSS) system no longer applies to sales to the UK. This means that you may need to register for VAT in the UK in respect of such sales.
While these generalities may seem straightforward enough, the agreement has raised far more questions than it has answered. Her Majesty’s Revenue and Customs (HMRC) website in the UK and Ireland’s Revenue website have different information on what the agreement means. Not only is guidance generalised and inconsistent, it is also constantly evolving. Much of what has been published so far by the media or financial services companies is worded using terms such as “generally” or “may” or “some”.
The UK is often the first export market for Irish companies looking to scale internationally. We need to know where we stand in relation to trade with our closest neighbours.
This is problematic given that the UK is a top trading partner of Ireland, along with the USA and Belgium. UK government statistics show that, in 2019, Irish exports to the UK were worth £30 billion and imports from the UK were worth £40 billion. Of our total exports to the UK, 54% were for services and 46% for goods. The UK is often the first export market for Irish companies looking to scale internationally. We need to know where we stand in relation to trade with our closest neighbours.
Know your obligations so you can take action proactively
What is clear from everything that has been published is that nothing is clear. If one of our clients comes to us with a straightforward question – for example, we’re an Irish firm selling a service into the UK, do we need to register for UK VAT? – you’d think there was a simple Yes/No answer we could give. But, unfortunately, there isn’t. Many variables will come into play in this situation, such as:
- whether the service is sold to consumers or businesses
- where the ‘point of supply’ of the service is legally
- what the service is
- the sector the business is in
- the value of what is being sold
There is no easy rulebook for dealing with the changes that Brexit has brought. We have found that these situations need to be evaluated on a case-by-case basis, so where a question of VAT arises for a particular client, we are investigating their specific business context and getting guidance – in writing – that they can base their decision-making process on.
Consider the impact of changes to how you trade
Deciding to register for VAT in the UK is going to have an impact on any business. Overnight, you’ll be introducing more administration to the business, have to do additional bookkeeping, and file twice instead of once. In the UK, you’ll need an accounting system that connects with HMRC for filing purposes. But the consequences of simply carrying on as through nothing has changed are significant. If you get it wrong, you could find yourself in a year’s time having to give back 20% of your UK revenues because you should have been registered for VAT over there.
My advice is that you invest in a few hours of consultancy from an expert, such as your accountant, who can do the research and give you an answer specific to your business – in writing. Don’t just sit back and expect your accountant to tell you what you should be doing, this is a situation that will require you to be proactive and get answers.
Some smaller businesses are simply not interested in unravelling the complexities of all this and so they have ceased trading with the UK at all, and vice versa. The consequences to trade can’t continue to be ignored, so I feel there is likely to be some smoothing out of this arrangement and the rules will be evolving for some time to come.
Engage with advice and supports from Enterprise Ireland
Enterprise Ireland is taking a lot of action in the area of Brexit. They have launched a new campaign called Evolve UK – driven by their UK-based team – which will deliver critical insights to Irish companies on the evolving UK market and sector changes/opportunities through reports, briefings/bulletins, and virtual events. Part of this campaign is the Evolve Strategic Planning Grant, designed to support clients through the changes to the trading environment in the UK. This €5,000 grant helps companies adapt their approach to the market to secure and grow their sales. It can also be used to optimise supply chains, research opportunities as the market evolves and changes, and prepare for changes in certification and regulatory requirements.
Don’t stick your head in the sand. If you do business with the UK, get documented advice and stay compliant so that there are no nasty shocks down the road.