Overview Purchases from UK and EU
At present VAT registered traders’ purchases from the UK and the EU are dealt with as intra-EU acquisitions. They are zero-rated by the supplier and that traders self-account for VAT on traders’ Irish VAT return. In effect, this would mean that the notional VAT on acquisition in Ireland is offset against VAT as an input credit provided the goods are for the purpose of making supplies that are fully subject to VAT.
If a transition or implementation period comes into being, then all the existing EU rules including those for VAT would continue to apply during the implementation/transitional period. There may be a change at the end of the period. If there was a hard Brexit, there would be an immediate change along the lines set out below.
EU Continent Supplies Post Brexit
Traders would be obliged to treat EU supplies and acquisitions in the same way as at present distinguishing them on traders’ VAT returns. Traders would be obliged to complete Intrastat and VIES returns. The UK would be no longer covered by them.
The continental EU supplier would not charge VAT and traders would self-account for VAT on the acquisition of the goods in Ireland.
As now, the EU supplier would need evidence that the goods were shipped and sent to an EU acquirer. The transit declaration to the UK and the use of the transit procedure would be a necessary element for the supplier to charge zero VAT to traders in the EU country.
Because the supply is not directly to an EU acquirer/purchaser but passes through the UK land bridge, they would require the transit procedure or sight of the transit declaration and discharge as proof that the goods had ended up in an EU state (Ireland).
Traders’ continental EU suppliers may require to be the holder of the transit procedure from the perspective of their own VAT compliance requirements if they have the capacity to do so. If the carrier is holder, they would require evidence from traders systematically to show the ultimate arrival of the goods in Ireland.
Pre Brexit-UK Purchases on VAT
At present all supplies of goods from a VAT registered business in one EU state to a VAT registered business in another EU state are VAT exempt in the state of export. Although they are exempt, VAT is still allowed as a deduction in respect of corresponding inputs as if they were subject of VAT or zero-rated.
Accordingly, in the case of exports from the United Kingdom traders’ suppliers are now entitled to treat the supply as exempt in the United Kingdom provided they obtain the requisite information from traders to prove that traders are VAT registered in Ireland and the goods are proved to be dispatched to traders. At present they can use the VAT information exchange system VIES.
In Ireland, at present, the acquisition of goods from a VAT registered entity in another EU state is treated as an intra-EU acquisition. The purchaser in this case traders’ RoI company itself accounts for VAT in the following VAT return. Where all of traders’ ultimate sales are subject to VAT, traders can claim the acquisition VAT as an input credit against traders’ VAT generally. The net effect is that no VAT is payable at the point of importation.
In due course, traders charge VAT to traders’ purchasers being trade purchasers who can generally reclaim VAT which traders charge them and for which traders account to the revenue.
Post-Brexit VAT position
The post Brexit VAT position on UK purchases by RoI traders will appear, superficially, to remain broadly similar to the position pre-Brexit. Technically however the position will be different. This assumes that the present VAT regime both in the EU and UK as regards third countries i.e. non-EU countries will be mutually applied by the EU and UK to each other as third countries, which is what is intended.
Instead of each movement inwards being treated as an acquisition with special intra-EU treatment it will be treated as an import the same as an incoming import of goods from third countries such as China. Equally, instead of each movement outwards being treated as a supply with special EU treatment, it will be treated as an export in the same way as an outgoing movement of goods to a third country such as China.
It is possible that some special EU UK VAT agreement will be entered to simplify the position. It would be desirable that each of the EU and UK continue to have access to something equivalent to the present VAT information exchange system. However, this is unlikely in the event of a hard Brexit. Something of that nature may arise in the longer term.
Default Post Brexit VAT position
After Brexit under the current rules, a sale by a UK supplier to an RoI VAT registered trader would be zero-rated as a UK export. Intrastat and VIES obligations would not arise unless there is some special agreement continuing these in force as between the EU and UK.
On the Republic of Ireland side, the movement of the goods into the state would comprise an import with VAT arising at the point of entry in normal course to be paid together with customs duty and to be covered by the customs declaration.
However, under the special deferred VAT accounting provision proposed at least in a hard Brexit, VAT may be postponed until the next VAT accounting date. Traders would need to apply for a Revenue for a VAT and Duty deferment account.
This will allow traders to defer the payment of VAT and Duty to the 15th day of the month (the VAT due date, which can be slightly later with ROS filing) following the month of import of the goods.
A financial guarantee from an EU established financial institution or a cash deposit is required. These may take time to put in place.
Subject to deferral, the net result on the Irish side is that VAT is technically accounted for in the same way as at present on the due date for VAT next following. In the same way, if the goods are to be put to a Vatable use as would be the case, a corresponding input credit can be claimed in respect of the import VAT due.
Once again VAT would arise in the same way on domestic sales to the trade. VAT would be charged by traders and accounted for to Revenue. Traders’ trade purchaser would be entitled to reclaim VAT..
Post-Brexit VAT Scenarios UK Suppliers
Where (and if) traders’ existing UK suppliers themselves bring the goods into Ireland acting both as exporters in the UK and as importers in Ireland or using some distributor or intermediary who is registered for VAT in Ireland, then the VAT treatment of traders’ purchases will change. The change will not have any ultimate consequence but may have a cash flow consequence.
A purchase from such an Irish based supplier would be the same as purchasing from any other Irish-based or established supplier. There could be an Irish VAT registered entity whether an Irish company a branch of the UK company established and registered in Ireland.
In this case, traders would be charged VAT by this entity and would have to pay it upon the purchase in accordance with normal credit terms. If the products were being used for a fully Vatable business, then traders could reclaim VAT on the purchase in traders’ VAT return next following. In the usual way, traders’ purchases would be set off against ultimate VAT liability. Instead of accounting for the purchases as intra-EU acquisitions traders would treat them as normal domestic purchases.
Traders as Importer
Where the traders acts as the importer of record in respect of the goods, they would need to undertake the import declaration and pay any customs duty applicable as well as VAT. The customs duty is on the value plus importation costs and VAT is charged on the whole amount being a double tax in this sense.
The default position at present is that VAT is payable at the point of import. Legislation has passed by the Oireachtas in March 2019 allowing for deferral of import VAT. The default position is that a guarantee is required. Conceivably Revenue might waive this if Brexit really hotted up. It is probably still advisable to apply for an account which trader may also need it for customs duties.
Accordingly, the default would be that VAT would be paid in accordance with traders’ customs deferment account which would require to be the subject of a guarantee. See above in relation to applying for a deferment account. If a hard Brexit becomes more likely, the Revenue may waive the requirement for a deferral account for a period in a hard Brexit.
The Brexit emergency legislation is stated to be temporary for the moment. The Irish government and Revenue may go back to requiring VAT at the point of entry in the longer term.
The effect would be that VAT would become due on the same day as traders’ next VAT return. This would then approximate to a situation much as exists at present, in cash flow terms, save for the costs of the guarantee. The date of liability for import VAT would be the same as the date of traders’ return so that the input credit could offset the import VAT.
The Government has indicated that postponed VAT accounting would initially be available to all traders for a period to alleviate immediate cash flow issues arising from Brexit. However, continued qualification for postponed accounting may depend on Revenue authorisation from a later date to be agreed and may be subject to certain criteria and conditions.
Traders should follow developments in this regard if traders act as an importer. Even if there are no customs duty there will be import VAT, so that a deferral guarantee may be required. Traders may need to ensure that traders take steps to put the guarantee in place which may require security or a bank guarantee backed by a loan facility to traders.
There is already a system of deferred VAT accounting where taxpayers who derive most of their revenue from foreign sales may qualify. We mention it to give traders an indication of how the new deferral system may develop. The Irish Brexit legislation also contains proposed changes to this procedure. By way of background, a VAT authorisation allows qualifying taxpayers to buy most goods and services at the 0% rate of VAT.
The measures contained in the recent Brexit Act apply conditions to qualify for the authorisation and to give Revenue additional powers in cases where an authorised business no longer meets the conditions for the authorisation. This would not appear to be available to traders so is not considered further
If traders act as the importer of record the goods would no longer be subject to EU statistical returns but would be treated in the same way as imports from outside the European Union.
UK company VAT issues on purchase
The position with traders’ UK counterparty is effectively the equal and opposite of that with the Republic of Ireland company. VAT in the United Kingdom is very similar to VAT in the Republic of Ireland because each of them are based on EU VAT directives which set the broad parameters of the VAT system.
Purchases from Europe would be treated as imports for the UK counterparty, from a VAT perspective. This includes purchases from Irish traders.
Instead of the current intra-EU arrangements equivalent to those mentioned above in respect of the Republic of Ireland company’s purchase from UK suppliers, there would be an import into the United Kingdom on a RoI or continental EU sourced purchase by the UK company post Brexit, exactly as an import that would arise for the Republic of Ireland company on purchases from UK suppliers after Brexit. The UK company would self-account for UK VAT on the import.
The sale would be an EU export in RoI and the rest of the EU as regards the supplier. It would be zero-rated in the EU.
There is also the possibility that there will be special VAT arrangements for Northern Ireland either alone or in the context of trade with the Republic of Ireland. The Withdrawal Agreement backstop provides that Northern Ireland would continue to be part of the EU VAT territory while GB would remain outside it. How exactly this might work was to take place is to be worked out under the Withdrawal Agreement. The relevant provisions may never arise.
Special UK Brexit Deferral Relief
The UK has announced that it will introduce postponed accounting for import VAT for VAT registered businesses in the UK. Under this proposal, businesses will be able to account for import VAT on the VAT return done at the point of entry at the border. However, the declarations whether simplified or with fuller formalities would still be required.
Accounting for import VAT on goods imported into the UK
If the UK leaves the EU without an agreement, the government will introduce postponed accounting for import VAT on goods brought into the UK. This means that UK VAT registered businesses importing goods to the UK will be able to account for import VAT on their VAT return, rather than paying import VAT on or soon after the time that the goods arrive at the UK border. This will apply both to imports from the EU and non-EU countries.
Irish (RoI) VAT Deferral Guidance
The Irish Department of Finance and Revenue have published very little about the VAT deferral. There is a power in the special Brexit legislation to provide for the VAT deferral. It may be temporary. It was intended to apply in a hard Brexit situation. It appears to require a guarantee equivalent to that for deferral of customs duty.
It may be that as a hard Brexit becomes a risk again further details will be published, and a guarantee may be waived for a period. The Irish Guidance is below.
Included in the Bill are specific provisions to protect the position of taxpayers and the State in the event of the UK leaving the European Union without a deal on 29th March.
One measure that will be of particular interest to business is the introduction of postponed accounting for VAT purposes in order to mitigate against a cash-flow burden that would arise for businesses trading with the UK.
Under postponed accounting, importers will not pay import VAT at the point of entry but will instead account for import VAT through their bi-monthly VAT return.
In other words, the VAT will be reclaimed at the same time that it is declared in the VAT return. This scheme is compliant with EU VAT law.