Ireland: Six-month report card on Brexit; VAT and customs implications

Value added tax (VAT) and customs issues based on first six months following Brexit

Value added tax (VAT) and customs issues based on first six months following Brexit

Value added tax (VAT) and customs issues have and may continue to arise for businesses, based on experience from the first six months following the departure of the United Kingdom from the EU (Brexit).

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 international commercia terms (incoterms). For example, a sale or purchase on ex works incoterms may give rise to substantially different VAT registration and accounting obligations for the parties, compared to a sale on delivered duty paid  incoterms. As there are a range of different incoterms, it is important that their implications are clearly understood. 
  • VAT “use and enjoyment” rules may result in VAT being charged on transactions (previously not the case). For example, an Irish company is required to charge Irish VAT if leasing movable goods to a UK lessee when the goods are “used and enjoyed” in Ireland. Similarly, an Irish company leasing movable goods to an Irish lessee when 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 instances of transport assets) in the same scenario, which can result in VAT arising in both Ireland and the UK. 
  • Irish businesses may have previously relied on EU VAT simplification measures (e.g., call-off stock or triangulation) when trading in goods with customers located in Great Britain. These reliefs are generally no longer available in respect of Great Britain. Their absence could result in significant changes in the VAT accounting treatment to be applied by the business. 
  • Many businesses may now be familiar with the “postponed import VAT accounting” (PIVA) regimes that came into effect on 1 January 2021 in both the UK and Ireland to help businesses manage the cashflow cost of import VAT. Under PIVA, importers do not have to make an upfront cash payment of the import VAT but instead can record the import VAT in the relevant VAT return under the VAT “reverse charge” accounting procedure and can take a matching deduction if entitled. 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 may arise. Businesses therefore may need to confirm they have a process in place to capture VAT on imports operated under PIVA and guarantee 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 Great Britain and vice versa. This has meant increased costs for businesses due to customs clearance administration, regulatory inspections and approvals, and 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 Great Britain. In this context, “origin” is a 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 Great Britain, businesses must confirm that the import declaration is completed correctly and that 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 Irish Revenue as, if the evidence is not available, preference will be withdrawn and tariffs will be payable. 
  • For businesses exporting from Ireland to Great Britain and when customers are expected to claim preference on imports into Great Britain, 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 Great Britain when the product was in free circulation in Great Britain. In these circumstances, the preferential 0% customs duty under the TCA does not apply and the product would instead be subject to normal “third-county” duty rates. This has been a significant issue for some Irish businesses given that many EU produced goods are dispatched to Ireland from distribution hubs in Great Britain. 
  • Apart from restructuring supply chains to avoid sourcing products via Great Britain, there are potential alternatives such as returned goods relief that allows for goods that 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 instances when goods are stored in distribution hubs in Great Britain, it may be possible to avoid duty on import into Ireland by using the transit procedure, provided the goods remain under customs supervision and control while in Great Britain (e.g., in a customs warehouse). There are conditions that must be satisfied, including a requirement to have a customs warehousing authorisation in Great Britain and that the goods must not undergo any production/transformation while in Great Britain. 
  • Businesses need to confirm that customs declarations that 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 may lead to an under or overpayment of customs duties, as well as increased scrutiny and potentially further action by Irish Revenue. 

Read an August 2021 report prepared by the KPMG member firm in Ireland


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