The Brexit Omnibus Act contains a number of provisions on taxation that were required as contingency measures in the event of a no deal Brexit. These are contained under Part 6 of the Act, which provides for the modification of Income Tax, Capital Tax, Corporation Tax, Capital Tax and Stamp Duty legislation in order to ensure continuity for business and citizens in relation to their current access to certain taxation measures, including reliefs and allowances in a no deal scenario.
Part 6 of the Act also contained a number of indirect taxation measures in the areas of VAT and Excise.
Most significantly, the Minister for Finance announced his intention to introduce a system of postponed accounting for VAT purposes as a contingency measure to alleviate the cash flow burden on businesses, post Brexit.
Postponed Accounting for VAT
Due to the UK’s status as a third country post Brexit, VAT on goods will become chargeable at the point of importation. This will have a significant impact on cash flow for business.
The Government therefore approved the introduction of postponed accounting for VAT purposes in the event of a no deal exit, in order to mitigate against cash flow issues which would arise.
Under the system of postponed accounting, importers will not pay import VAT at the point of entry, instead, importers will 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.
Postponed accounting will initially be introduced for all traders for a limited period to alleviate immediate issues, however following an initial period, at a time to be decided by the Minister for Finance, continued use of the postponed accounting system will depend on fulfilling criteria, which will be set by the Revenue Commissioners.
Duty Free Sales and VAT Retail Export Scheme
In addition, the Government introduced two measures in the Brexit Omnibus Act relating to Duty Free sales and the application of the VAT Retail Export Scheme, between Ireland and the UK in a ‘no deal’ scenario. The measures contained in the Act are contingency measures as it is anticipated that a solution to such matters will form part of a future relationship agreement between the EU and UK.
The measures were influenced by the potential for significant Exchequer impacts as a result of the expansion of the schemes to UK passenger traffic, the significance of the volumes of such traffic, the necessity for adequate protection of government health and welfare policies and the risk of abuse of the VAT Retail Export Scheme in a no deal scenario.
The introduction of the measures will be dependent on the UK’s policy on the schemes, which is currently unknown. The Government will continue to monitor the situation and a decision on the commencement of the measures contained in the Act will only be made when the UK announce their intentions for the application of the schemes, post Brexit.
The Duty Free measure, if commenced will restrict Excise free sales at Duty Free shops for passengers travelling to the UK, however those sales will be VAT free. The intention is to provide reciprocal protection to the UK if they decide to restrict their Duty Free scheme. However, if the UK applies an unrestricted Duty Free scheme, Ireland will not commence the measure, and Excise and VAT free sales on purchases made at duty free shops, subject to quantitative purchase limits, will therefore operate between Ireland and the UK.
In addition, the Government has made provision on a precautionary basis for two changes to the operation of the VAT Retail Export Scheme in the Brexit Omnibus Act. The measures do not eliminate the use of the VAT Retail Export Scheme for UK residents, post Brexit, instead they provide a legal basis to control and minimise the risk of abuse of the scheme due to the volumes of passengers between the UK and Ireland.
The Act provides for:
An increase in the value of qualifying goods under the scheme. Purchases must exceed €175 in order to be eligible for a refund under the scheme. This monetary limit will apply in respect of all third country travellers who apply for a refund under the scheme.
The introduction of a new requirement of proof of importation of the goods into the UK with the associated proof of payment, where applicable, of relevant UK VAT and duties, for the goods purchased under the scheme, will be required to satisfy the application for a refund. This requirement will only apply to UK residents applying for a refund.
Similarly, the intention is to provide reciprocal protection to the UK if they decide to restrict the introduction of the VAT Retail Scheme. However, should the UK apply an unrestricted Retail Export Scheme post Brexit, Ireland will not commence the precautionary sections, and an unrestricted VAT Retail Export Scheme will therefore operate between Ireland and the UK.