16 Jun, 2021

VAT Consequences of the UK Leaving the Single Market

The UK became a ‘Third Country’ upon the signing of the Trade and Cooperation Agreement on Christmas Eve 2020 explains Bernadette Farrell, Senior Tax Consultant.

The UK became a ‘Third Country’ upon the signing of the Trade and Cooperation Agreement on Christmas Eve 2020.

Since 1 January 2021, supplies of goods from Ireland to GB are now regarded as exports, while goods purchased from GB and delivered into Ireland are treated as imports. Therefore, goods leaving Ireland are not liable to Irish VAT but may be liable to UK import VAT at the point of entry and goods coming into Ireland from GB will be liable to Irish VAT at the point of entry. Postponed accounting from VAT non imports can help mitigate the cash flow disadvantage.

The terms of the Ireland/ Northern Ireland Protocol require that Northern Ireland maintains alignment with the EU VAT rules for goods (but not services). Therefore, there is no change to the current VAT rules in respect of goods traded between Ireland and NI. However, NI businesses must use the 'XI' prefix in front of their VAT registration number rather than the 'GB' prefix when trading with EU suppliers and customers.

Sales to Unregistered UK Customers

Brexit has also impacted the rules applicable to B2C (Business to Consumers) sales of goods. Irish VAT registered business that did charge Irish VAT on B2C supplies of goods to GB unregistered consumers do not now charge Irish VAT. However, the Irish supplier will need to consider whether they arrange for payment of the UK VAT and customs duties at the point of import into the GB; or if their customers should be responsible for the payment of the VAT or customs duties arising in the UK.

Supply of services

GB and NI are considered as one country for the provision of services. The VAT treatment applicable to the supply of most B2B (business to business) services between Ireland and the UK will broadly remain the same; however, a couple of issues that may arise: Irish VAT will not arise on the supply of certain services (e.g., consultancy, leg, accounting) to non-business customers in GB or NI from 1 January 2021.

Supplies of certain services to customers outside the EU but 'used and enjoyed' in Ireland can give rise to Irish VAT implications. For example, leasing an asset to a GB or NI entity that is used in Ireland. Irish VAT may arise.

The VAT treatment of B2C (business to consumer) supplies of electronically supplied services, telecommunications services and broadcasting services have also changed. The mini one-stop shop (MOSS) scheme will no longer apply in respect of UK VAT changed on B2C supplies to UK consumers, and Irish companies engaged in such supplies will need to VAT register in the UK to take account of the UK VAT due on such supplies.