The impact of Brexit on Customs and VAT regulations is likely to remain unknown for some time. For the many Northern Irish businesses that may need to prepare for changes in how imports and exports with other EU countries are taxed, it is perhaps timely to summarise the current arrangements that apply to goods imported to and exported from the UK.
The VAT rules applied by Northern Irish businesses to imports and exports differs between countries within the EU and countries outside the EU. Understanding these rules can help your business run smoothly, improve cash flow and avoid penalties.
Import VAT is applied on goods imported directly into the UK from outside the EU and is payable when goods are declared to Customs. Import VAT is payable on all imports at the same rate that would apply if the product was purchased in the UK. A VAT registered business can recover the import VAT paid on their UK VAT return although there is often a delay between paying and recovering the import VAT. The importer is also required to retain commercial and official evidence relating to the import.
Customs Duty is also payable upon importation and is an absolute cost to the business as it is not recoverable, although in practice this cost may be passed onto the customer. The rate of Customs Duty payable depends on the goods being imported. It is the uncertainty over the rates of the Duty that will be applied following Brexit that is currently causing ambiguity or concern. No VAT is chargeable on the export of goods outside the EU. Similarly to the rules for imports, it is necessary to keep commercial and official evidence on the exported goods to support the VAT that is applied. Customs Duty is usually payable on the importation of the goods which has the effect of increasing the cost.
A Northern Irish business that purchases goods from EU suppliers is generally not charged local VAT by the supplier, but may be required to self-account for UK VAT on the value of the goods under a specific EU procedure. This VAT is usually recoverable by the business through its UK VAT return where the relevant conditions are met. This procedure means there is no adverse cash flow impact as there is in the case of imports
The VAT treatment for the supply of goods to customers in another EU country, including sales to Ireland, depends on the type of customer. A sale of goods to a business customer in another EU country may be zero rated for VAT purposes provided certain conditions are met.
For retail sales to private customers in another EU country a business can continue to charge UK VAT. However, businesses should be aware of special rules that may require the business to register in the EU country to which the goods are supplied, which can create additional complexity and be administratively burdensome.
Local businesses should consider the impact of Brexit where the free movement of goods and the cash flow benefits of the current arrangements may be lost.