Major VAT Changes for Trade Between EU and Northern Ireland

If you are involved in business-to-consumer (B2C) trade with Northern Ireland (NI), you need to be aware of major value-added tax (VAT) changes that took effect from July 1, 2021. These changes also apply if a NI business trades with the EU. If you have opted for the EU’s One-Stop Shop (OSS), you will still need to know how sales to or from NI should be reported.

Background

After Brexit, goods shipped between the EU and Great Britain (i.e. England, Scotland and Wales) are treated as exports and imports. The special rules apply under the Northern Ireland Protocol of the EU-U.K. Withdrawal Agreement (NI Protocol). For the purposes of movements of goods and VAT refunds related to sales of goods, NI is treated as if it were an EU member state.

Under the terms of the NI Protocol, goods moving between the EU and NI are not treated as exports from the EU and imports into NI (or vice versa) but remain subject to the EU’s VAT and customs rules.

Transactions involving services are not covered by the NI Protocol. Consequently, transactions in services between EU member states and NI are treated as transactions between member states and “third countries” (i.e. non-EU member states).

This basically means that NI is treated for VAT purposes as an EU member state in respect of movements of goods, but as a non-EU member state for services.

Business-to-Business

Goods moving between NI and the EU are still considered as intra-EU (i.e. intra-Community) supplies and therefore not subject to import VAT. Businesses making intra-Community supplies are required to complete Intrastat and EC Sales Listings. From Jan. 1, 2021, customers must have a VAT number with an “XI” prefix (“XI number”) for B2B deliveries to NI to qualify as exempt intra-EU supplies.

Business-to-Consumer

Cross-border B2C selling from EU countries to NI falls under the EU’s so-called distance sales rules. Distance selling occurs when a taxable supplier sells and delivers goods from one EU country to a customer in another EU country who is not registered for VAT, such as a private individual. Common examples of distance sales are goods supplied by mail order and via the internet when goods are shipped between EU countries and NI.

It is important to note that EU distance selling rules only apply to B2C trade when goods are shipped between member states; those distance selling rules do not apply to e-commerce or mail-order sales to customers residing in countries outside the EU’s VAT territory, for instance in Great Britain.

Major Changes to B2C Trade Applicable From July 1, 2021

New EU distance selling rules are applicable from July 1, 2021 where a business sells and delivers goods to a non-VAT registered customer from an EU member state to NI or vice versa.

EU E-Commerce Package

Changes apply from July 1, 2021 in respect of the movement of goods from the EU to NI, and vice versa, as well as imports of low-value goods into the EU and NI.

• Abolition of country-by-country thresholds

The thresholds of either 35,000 euros ($39,500) or 100,000 euros set by each member state (in NI and the rest of the U.K. the threshold was 70,000 pounds ($93,000)) for distance selling between EU member states and NI, have been replaced with a single pan-EU threshold of 10,000 euros. This threshold only applies to the total cross-border sales by the EU/NI business across the EU (and NI) and not, as previously, on a country-by-country basis.

EU businesses making distance sales from the EU to NI, or vice versa, must register for U.K. VAT if the value of their cross-border sales in the whole of the EU and NI during a calendar year goes over 10,000 euros.

NI businesses making distance sales from NI to the EU must register for VAT in all EU member states where they make distance sales if the value of their sales into EU member states during a calendar year goes over 10,000 euros.

No threshold applies for non-EU businesses.

This means that EU/NI businesses selling B2C goods from the EU to NI and from NI to the EU above the distance selling threshold and all non-EU businesses will be affected by the new rules.

One-Stop Shop

To ease the administrative burden of businesses having to register in each EU member state where they have customers, there is a new opt-in online OSS quarterly VAT reporting and payment system. This means that businesses falling within the scope of the new distance selling rules are not required to register for VAT in each of the EU member states of their customers if they opt for the OSS instead.

B2C Movements of Goods between EU and NI

• EU to NI

Where EU businesses make distance sales from the EU to NI, they must register for U.K. VAT unless they are established in the EU or NI and their cross-border trade in the EU/NI does not exceed the threshold of 10,000 euros. If the value of their cross-border sales into the EU/NI during a calendar year goes over the distance selling threshold, they either need to register for VAT in the U.K. and charge U.K. VAT, or register for the OSS and report the U.K. VAT via the OSS return. No threshold applies for businesses not established in the EU or NI.

• NI to EU

Where NI businesses sell to EU consumers, they also may benefit from the EU-wide distance selling threshold of 10,000 euros, which allows them to sell to member states under U.K. VAT rules by charging U.K. VAT and reporting it to the U.K. tax authority, HM Revenue & Customs (HMRC), until their total sales in the EU exceed this limit.

NI businesses making distance sales from NI to the EU must register for VAT in all EU member states where they make distance sales if the value of their distance sales into EU member states during a calendar year goes over the new distance selling threshold of 10,000 euros. No threshold applies for businesses not established in NI or the EU.

Alternatively, NI businesses could make use of the OSS. This means registering for the OSS and reporting the VAT charged by the member states where the customers are located, via the OSS return. NI businesses need to register with HMRC for the OSS if they opt for this .

When One-Stop Shop is Used

• Goods

Once registered for the OSS, a business must account for VAT on all its distance sales through the OSS. For example, a business selling in the EU and NI from a warehouse located in an EU member state should report its NI sales in the OSS return, not in the U.K. return.

Different Rules for Services and B2C Trade in Goods Between Great Britain and NI

• Services

The new EU rules of the e-commerce package apply to both goods and services supplied throughout the EU. However, as the NI Protocol only applies to goods, the U.K.’s implementation of the EU e-commerce package will only apply to supplies of goods in respect of NI. This means that supplies of services to or from NI do not count towards the distance selling threshold.

This also means that services provided to NI customers cannot be reported via the OSS and should thus be reported in the U.K. VAT return.

• B2C Trade in goods between Great Britain and NI

If a business delivers goods to NI from Great Britain, then the EU distance sales rules as described above do not apply; the business should use the “GB” VAT number, not the “XI” VAT number for those sales, and always report them in the U.K. VAT return (using the OSS is not possible for this trade).

Practical Tips for B2C Trade in Goods Between EU and NI

• From Jan. 1, 2021, customer VAT numbers must have an “XI” prefix for the distance sales/B2C deliveries from an EU member state to NI.
• The threshold of 70,000 pounds ($93,000) for cross-border B2C selling from EU member states to NI was only applicable until July 1, 2021.
• HMRC has updated its guidance on the distance selling obligations for goods being sold from NI to consumers in the EU.
• EU businesses making distance sales from the EU to NI must register for U.K. VAT if the value of their cross-border EU distance sales during a calendar year goes over the distance selling threshold of 10,000 euros.

Planning Points

• An EU or NI seller may make use of an EU/NI-wide threshold of 10,000 euros.
• No threshold applies for non-EU businesses, who must register immediately in the member state of destination or in the U.K. when selling to final customers in member states or in NI after July 1, 2021.
• OSS registration is available for businesses to register in their EU country of establishment, in the EU member state of departure (for non-EU businesses), or with HMRC for NI businesses.
• If the OSS is opted for, all EU distance sales are reported via an OSS registration in the quarterly OSS return.
• Once registered for the OSS, all EU distance sales must be reported via the OSS.
• Services provided to NI customers cannot be reported via the OSS

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners

Author Information

Aiki Kuldkepp is Senior Manager, Tax, with Grant Thornton Netherlands.

The author may be contacted at: aiki.kuldkepp@nl.gt.com