Brexit clock ticking fast for Irish firms to get VAT-ready

If a week is a long time in politics, then a year is an absolute eternity in the politics of Brexit.


Last year, we outlined the VAT implications of Britain’s looming departure from the EU. Already complicated, the picture has since become even cloudier as the UK’s Internal Market Bill pushes for a new law that would change post-Brexit customs and trade rules in Northern Ireland. Things are far from resolved, and one Brexit issue which could impact businesses in Ireland is VAT. For the many Irish firms that rely on the UK/NI markets for goods; VAT will be extremely complex with significant challenges in terms of cashflow, administrative burden, and overall competitiveness.

“The first thing to say is that the proposal to change the Northern Ireland VAT regime under the Ireland / NI Protocol to the Withdrawal Agreement will probably make it the most complicated in Europe,” says Cróna Clohisey, Public Policy Lead with Chartered Accountants Ireland.

“Under the Protocol, Northern Ireland will follow most EU VAT rules in relation to goods but this is not the case with services,” she says. “There are potential headaches in store for Irish companies exporting to, and especially importing from, the UK, and you must start getting on top of the rules now.

Come the first of January 2021, the UK will effectively operate three different VAT regimes. These include VAT rules for goods in Northern Ireland, which will continue to reflect the current position under EU law. For the rest of the UK (Britain excluding Northern Ireland), there will be a different VAT regime for goods. And finally, the UK will have a separate set of VAT rules for services.

No postponement on VAT payments

“If you’re an Irish firm trading with Britain, that’s where the biggest change is going to happen as you’re now going to be dealing in imports and exports rather than intra-community supplies,” says Cróna Clohisey. “For many businesses, this will be the first time they’ve had to deal with the rules for imports and exports.”

“The main issue will be for Irish companies importing goods from Britain,” she says. “From next year, you will be responsible for the import VAT and that will have to be paid immediately on import, whereas pre-Brexit any VAT arising could be dealt with later in your tax return.”

“If you’re adding 21% to goods worth €100,000, that’s an additional €21,000 you have to come up with that you may not have had to come up with before,” Clohisey adds to illustrate the point. “You will be able to claim it back later, but you could be waiting as long as 10 weeks before you’re able to recoup it in your next VAT return if you don’t have a deferred payment arrangement with Revenue.

“Although the UK Government has announced that it will postpone import VAT regardless of the Brexit outcome, the Irish Government has said it will only postpone import VAT on goods traded with Britain in the event of a no-deal Brexit,” she says.

“Irish importers will be able to account for the VAT later, as they currently do on goods from the UK.  If an agreement is reached between the EU and UK, VAT on imports from Britain could cause significant cashflow issues,” Clohisey says. “This is probably one of the biggest challenges that Irish firms will have to deal with in terms of importing goods from Britain, particularly those who don’t have a deferred payment account with Revenue.”

Registering for UK VAT

Another unforeseen issue coming down the tracks is the potential need to register for VAT in the UK. Up to now, many businesses were happily trading within the EU, so Irish firms did not necessarily need to register for VAT in the UK – that is about to change. “Situations will arise in 2021 where you will need to register for UK VAT, or where it will be more appropriate to do so,” says Cróna Clohisey.

“The problem with VAT registration is that it can take a long time,” she says. “Remember, you’re dealing with a new trading regime and HMRC (UK tax authority) won’t just hand out these registrations to anyone, they need to check it’s a legitimate business and that can take weeks.

“If you wait until January [to register], it could be March or April before you get your VAT registration,” Clohisey warns. “I’d be doing it now, don’t wait.”

While the ‘carving-out’ of Northern Ireland continues to make political headlines, it’s clear that there are customs and VAT-related ripples that will have a profound effect on Irish companies dealing with the UK.

Act now

“Now is the time to prepare,” says Cróna Clohisey. “Many Irish firms, especially the smaller guys, will need assistance and advice to understand the new UK/NI trading regime and how it affects them. There are some good supports out there including or, as a first port of call, you should talk to your accountant or financial controller.”

Getting set for UK customs

Customs implications for trading with the UK

Under the old dispensation, goods travelled freely between Ireland and Britain, Ireland and Northern Ireland, Ireland and Wales: all were members of the European Union, and there were no trade barriers. No need to fill in customs declarations and prepare documentation for bureaucratic checks and filing. No need to pay duties on most goods. When the UK leaves the EU shortly, it will become a Third Country and full customs procedures will come in to force.

Enterprise Ireland organised an information day on what Irish businesses need to do to facilitate importing from the United Kingdom once it leaves the EU.

The good news is that there will be plenty of leeway to get most of the systems and documents in order, according to David Vallelly of Her Majesty’s Revenue and Customs (HMRC).

According to Vallelly, there will be no requirement from the UK side for anything to change in customs arrangements between Northern Ireland and the Republic of Ireland. “There will be no customs tariffs or formalities on most goods moving from Ireland to Northern Ireland,” he confirmed. “This is a unilateral measure, from the UK side.”

In the meantime, as Donna Hemphill of Deloitte’s Global Trade Advisory section, Belfast, noted, the Revenue Commissioners will still expect a customs declaration for goods exported to Northern Ireland.

There will remain a few requirements, for goods which fall under Excise or Licensed categories, such as tobacco, and these will be subject to HMRC inspection on occasion.  Exporters are likely to be notified ahead of time of these checks. “Companies are most likely to know if their product falls into one of these categories,” Vallely said.


Transitional Simplified Procedures

Turning to trade from the island of Ireland to Britain, Vallely explained the new set of Transitional Simplified Procedures (TSP) for goods coming into the UK from the EU.  Traders registered for TSP won’t need to make full customs declarations immediately.  In addition, the vast majority of imports from the EU into the UK will be duty free for a temporary period. However, a company must have some form of legal entity in the UK in order to qualify.


Exception when trading with non EU members

A number of exceptions, known as easements, are ready to be in place to minimise the impact of No Deal. A Duty Deferment Account can also be set up to allow you make one payment of customs duties by way of direct debit instead of paying for individual shipments. 

Other important acronyms, and the reality behind them, include EORI (Economic Operator Registration and Identification). This is needed for either exporting or importing with the UK.

Full details of required registration procedures, documentation and how to obtain relevant numbers are on the UK Government website,, which is searchable.


The landbridge

As for the landbridge, when goods transit through the UK, these will require a transit declaration, which is completed using the NCTS (New Customs Transit System). Traders need to ensure a guarantee is in place to cover any financial liabilities. This procedure is under the Common Transit Convention, which covers all EU countries, and to which the UK as a potential non-EU country has been invited to accede.

In his presentation, Vallely recommended use of customs agents to handle the customs process because of their familiarity with the acronyms, how to correctly fill out forms, and the software to use. In addition, he advised: “Talk to your customers, find out what they are doing and are prepared to do.” Some of the administrative burden could be shared by cooperation.


Establishing a UK Presence

Having a business entity in the UK will help ease customs processes in the post-Brexit world, the Enterprise Ireland conference was told. This is needed in order to apply for Transitional Simplified Procedures. The UK company could then act as an importer of goods coming from Ireland.

Gerry Collins of ECOVIS, a business consultancy which specialises in assisting companies set up inside the UK, said companies should first decide if they need a UK presence, and then choose which model suits bests.

The options are a branch of the business, a separate company, or a limited liability partnership (LLP). Collins said the most popular option in his experience is a separate company, which indicates more commitment to the UK market than a branch office. The major issues are the time frame, legal protection, accounts filing and taxation. Visas for staff who cannot avail of the Common Travel Area between Ireland and the UK are also a priority.

Collins said 95% of his clients choose to set up a company, which is relatively simple and quick – “you can do it the same day if you are keen”.


Learn more on preparing your business for customs with Enterprise Ireland’s free, online Customs Insight course.

Brexit – the VAT implications

The trade debate in the wake of the Brexit referendum vote was dominated by customs and tariff issues, and little attention was paid to VAT. However, it has become clear in the interim that VAT has the potential to create real difficulties for Irish companies in terms of cash flow, an increased administrative burden, and a potential loss of competitiveness.

New Language and Terminology

Among the first things we are going to have to change is the language and terminology we use, according to Crona Clohisey, Tax and Public Policy Manager with Chartered Accountants Ireland. “At the moment, VAT is seen as a European tax,” she explains. “It is different to corporation or income taxes where member states set their own rules. There can be slight differences for certain VAT rules but by and large they are the same across the EU.”

All the rules are the same in terms of aspects such as where VAT arises, who is the taxable person, and so on. “Makes it easy to trade and carry out transactions across Europe,” Clohisey adds.


Trading with the UK

“If the UK leaves, they will have the freedom to make and implement their own rules,” she continues. “They have indicated they are going to keep their current VAT system and won’t deviate too much. But in saying that, when companies import from within the EU that’s treated as an intra-community acquisition. Imports and exports only apply for trade with countries outside the EU. We are going to have to change the language and terminology we use for trade with the UK for example.”

At present, when the EU makes changes to the VAT rules it issues a Directive and every country has to implement that by transposing it into national law. The rates of VAT and the thresholds for registration may vary slightly from country to country but the rules are essentially the same. “But the UK can in reality do whatever they want after they leave,” Clohisey notes.


Impact of VAT on Cash Flow

The system, as it operates at present, is very straightforward. When a company registered for VAT in Ireland purchases a product from the UK, no UK VAT is charged. The Irish company self-accounts for VAT using what is known as a reverse charge mechanism. The Irish VAT charge is applied in their next VAT return and a simultaneous credit is taken for it as if a reclaim had been made.

That will change following Brexit, however. Imports from the UK will attract an Irish VAT charge at the time of import and this VAT will have to be paid immediately rather than accounted for at the time of the next VAT return.  “When the UK becomes a third country, UK exporters to Ireland won’t charge VAT. Once the goods from the UK arrive in Ireland, the Irish VAT rate, usually 23%, is applied and must be paid immediately by the importer along with any customs duties. The Irish importing firm can deduct this from their VAT payable on their next VAT return, but that presents cash flow issues. If a company is making VAT returns every two months, it can be up to 10 weeks before they reclaim the VAT already paid on import.”

That will not apply to every company, however. “A lot of established traders have a deferred payment account with Revenue and may be able to postpone the payment of upfront import VAT,” Clohisey notes. “Revenue recognises these companies as reliable trusted traders. But that’s not really applicable to smaller companies who may not have a deferred payment account, as you have to through quite a rigorous process to get this.”


VAT Issue for Online Selling

Online sales to consumers will also be affected. “This is something that is going to change a lot,” Clohisey points out. “When an Irish consumer buys online from a UK entity at the moment there is no customs and VAT is generally contained within the advertised price.  But if the same consumer buys from Australia or the US and the value of the goods purchased exceeds €22, Irish VAT will apply, and customs duty may also be payable. When the mail is delivered to your door you are asked to pay the outstanding VAT and customs duty.”

If those same rules apply to goods from the UK, after Brexit, this will mean VAT and customs might have to be paid at the front door by Irish consumers.

“Brexit has thrown up a lot of things we wouldn’t have thought of before. UK citizens will be entitled to claim VAT back on their shopping in the Republic of Ireland in the same way that American citizens are. This could have significant implications for cross-border shopping,” says Clohisey.


Seek Professional Advice

Another slight headache relates to VAT reclaims on business expenses incurred in another EU member state. “When VAT is incurred in another EU country, a company can claim it back through their local VAT authority,” Clohisey explains. “Once the UK leaves, it will no longer be covered by the EU VAT Refund Mechanism and companies will have to go to each member state individually to reclaim any EU VAT incurred. That’s one more thing to think about. Companies should sit down with their accountants to discuss the VAT issues that Brexit will bring as VAT rules can be confusing at times. Most companies probably have their VAT systems set up very well, and now they may have to alter them to deal with a whole new set of rules. The sooner they get professional advice the better.”

Understand the impact of VAT and other factors on your working capital through the Brexit: Act On Initiative.