Despite a lot of media coverage and pressure from interested parties, there was no change to the unwinding of the reduced rate of VAT for the tourism and hospitality sector. The rate is currently 12.5% and will revert to 20% on 1 April 2022. This puts NI businesses at a disadvantage compared to similar businesses in the Republic of Ireland where the reduced rate of 9% was recently extended to 31 August 2022.

There has also been a lot of media coverage on VAT on domestic fuel given the recent price rises. Although the Chancellor referred to the hardships being experienced, there was no reduction in the VAT rate on such supplies and they continue to be subject to VAT at the reduced rate of 5%.

The government did make a number of VAT announcements as part of their continuing efforts to minimise the impact of the Northern Ireland Protocol in certain cases where it undermines trade between GB and NI. 

VAT second-hand margin scheme – interim arrangement for Northern Ireland

Following previous announcements on this area since the start of this year, in this latest announcement, the government will extend the VAT margin scheme to apply in Northern Ireland on a limited basis in respect of motor vehicles sourced from Great Britain for the period until the Second-hand Motor Vehicle Export Refund Scheme is implemented. As a result, motor vehicles first registered in the United Kingdom prior to 1 January 2021 will be available to sell under the VAT margin scheme in Northern Ireland. This measure needs to be agreed with the EU and would apply retrospectively from 1 January 2021, which should bring more certainty to this area. 

Second-hand Motor Vehicle Export Refund Scheme

It is proposed that businesses who buy used motor vehicles from GB that are removed for resale in NI or the EU may be able to claim a refund equivalent to VAT on the price paid under the second hand motor vehicle export refund scheme. This will ensure that Northern Ireland motor vehicle dealers will remain in a comparable position as those applying the VAT margin scheme elsewhere in the UK.

These announcements will help those specifically affected by the measures over the short term while the UK and EU negotiating teams continue their work on seeking to reach a jointly agreed position on more sustainable and longer term solutions to the issues arising in practice on certain GB-NI trade. 

Other indirect taxes

In his speech the Chancellor made great play of the flexibility available now the UK is outside of the EU, in particular in relation to Alcohol Duty and Air Passenger Duties. 

Alcohol Duty

All alcohol duty rates have been frozen again this year and the government has also published a consultation on its detailed proposals for alcohol duty reform with the rate of duty being linked to the alcoholic strength of the beverage. However, the Northern Ireland Protocol will mean that the application of any reforms to Northern Ireland will need to be discussed and agreed with the EU. 

Air Passenger Duty (APD)

The government is also introducing a package of APD reforms that include a 50% cut in domestic APD aimed at boosting UK connectivity and making travel across the UK more accessible. This will be particularly valuable to Northern Ireland where there are fewer travel alternatives. In addition, a new ultra-long-haul distance band for APD will be introduced. These changes will take effect from April 2023.

Get in touch

If you have any queries on the topics covered above, please contact Frankie Devlin or Jennifer Upton of our Belfast office.