VAT Considerations

UK or Irish businesses may trigger VAT registration and accounting obligations when trading with customers in the other jurisdiction depending on the exact arrangements and incoterms. For example, a sale or purchase on ex works (EXW) incoterms could give rise to substantially different VAT registration and accounting obligations for the parties compared to a sale on Delivered Duty Paid (DDP) incoterms. As there are a range of different incoterms, it is important that their implications are clearly understood.

VAT “use and enjoyment” rules can result in VAT being charged on transactions which was not previously the case. For example, an Irish company is required to charge Irish VAT if leasing movable goods to a UK lessee where the goods are “used and enjoyed” in Ireland. Similarly, an Irish company leasing movable goods to an Irish lessee where the goods are used and enjoyed in the UK will have to charge UK VAT on that lease. At present, there is no relief from having to charge Irish VAT (except in the case of means of transport assets) in the same scenario, which can result in VAT arising in both Ireland and the UK.

Irish businesses might have previously relied on EU VAT simplification measures (e.g., call-off stock or triangulation) when trading in goods with customers located in GB. These reliefs are generally no longer available in respect of GB. Their absence could result in significant changes in the VAT accounting treatment to be applied by the business.

Many businesses will now be familiar with the postponed import VAT accounting (PIVA) regimes which came into effect on 1 January 2021 in both the UK and Ireland to help businesses manage the cashflow cost of import VAT. Where PIVA is availed of, importers do not have to make an upfront cash payment of the import VAT and can instead record the import VAT in the relevant VAT return under the VAT “reverse charge” accounting procedure and can take a matching deduction if they are so entitled. It should be recalled that if PIVA is not correctly reported in the relevant party’s VAT returns, Irish VAT law deems the importer to owe VAT from the date of import and penalties and interest could arise. Businesses therefore need to ensure they have a process in place to capture VAT on imports operated under PIVA and ensure that the VAT arising is reported in the VAT return period in which the import takes place.

Customs Considerations

Customs considerations are now a factor for all trade in goods between Ireland and GB and vice versa. This has meant increased costs for businesses due to customs clearance administration, regulatory inspections and approvals, potential supply chain delays as well as exposure to potential irrecoverable duty costs.

As a result of the Trade and Cooperation Agreement (“TCA”) entered into by the EU and the UK, a preferential rate of 0% customs duty applies to products of “GB origin” imported into Ireland and/or the EU, and “EU origin” products imported into GB. In this context, “origin” is customs term and does not simply mean where the goods have been shipped from.

In order to claim the 0% preferential duty rate on goods imported from GB, businesses must ensure that the import declaration is completed correctly and they possess and retain the relevant documentary evidence to support the origin of the goods. This is especially relevant for any post-clearance check carried out by Revenue as, if the evidence is not available, preference will be withdrawn and tariffs will be payable.

For businesses exporting from Ireland to GB and where customers are expected to claim preference on imports into GB, it is important the business is aware of its obligations in respect of providing valid statements of origin for its supplies.

The TCA does not provide any special measures in respect of products of EU origin imported into Ireland from GB where that product was in free circulation in GB. In these circumstances, the preferential 0% customs duty under the TCA does not apply and the product will instead be subject to normal “third-county” duty rates. This is a significant issue for Irish businesses given that many EU produced goods are dispatched to Ireland from distribution hubs in GB.

Apart from restructuring supply chains to avoid sourcing product via GB, there are potential alternatives such as Returned Goods Relief (“RGR”) which allows for goods which have previously been exported from the EU to be returned to the EU without payment of customs duty (and in some cases VAT) provided certain conditions are met. Alternatively, in certain scenarios where goods are stored in distribution hubs in GB, it may also be possible to avoid duty on import into Ireland by using the transit procedure provided the goods to remain under customs supervision and control while in GB (e.g. in a customs warehouse). There are conditions that must be satisfied, including the requirement to have a customs warehousing authorisation in GB and the goods must not undergo any production/transformation while in GB.

Businesses should ensure that customs declarations which are filed on a self-assessment basis are completed accurately, whether completed in-house or outsourced to a logistics partner or customs agent/broker. Incorrect declarations can lead to an under or overpayment of customs duties, as well as increased scrutiny and potentially further action by Revenue.

Conclusion

While many businesses have now adapted to the new trading arrangements, it is important to continue to focus on the VAT and customs compliance requirement to help avoid unfortunate costs and administration.

David Duffy is Indirect Tax Partner at KPMG