Trading with the UK - Irish VAT consequences of a no-deal Brexit

On 5th February 2019, an announcement was made by the government that they agreed a measure in relation to VAT, to mitigate the cash-flow burden on businesses post Brexit, should the UK fail to agree a deal for its orderly departure from the European Union.

As it currently stands, assuming a ‘no deal’ scenario, when the UK withdraws from the EU they will become a non EU or ‘third country’ for VAT purposes. This will have an impact on the tax treatment of all goods sold between businesses in Ireland and the UK.

Goods currently being sold and dispatched between Ireland and the UK are treated as ‘Intra-Community Supplies’. For VAT accounting purposes the recipient is required to ‘self-account’ for the VAT due in the country of arrival and in most cases can claim a simultaneous input deduction resulting in a VAT cash neutral accounting exercise. Under current VAT rules in Ireland businesses importing goods from outside the EU are required to pay VAT on the value of the goods imported to the Customs authorities and to then recover that VAT through their periodic VAT returns. This produces a significant cash flow burden for businesses which import significant amounts of goods. In order to mitigate against this cash-flow burden on businesses, Minister Paschal Donohoe T.D proposed to introduce a legislative change to introduce a system of postponed VAT accounting. The Irish Government then published on 20th February, as part of its Brexit Contingency Action Plan, the proposed legislation “Withdrawal of the United Kingdom from the European Union (Consequential Provisions) Bill 2019”. The Bill was signed into law on the 17 March, 2019.

From a VAT perspective the purpose of the legislative change is to alleviate the cash flow impact on business as a result of the UK’s status as a non EU country which would create as a consequence, the requirement for businesses to pay VAT at the point of import, rather than at the time of filing their bi-monthly VAT returns. The Bill provides for the introduction of postponed accounting for VAT for all importers who are registered for VAT in Ireland. Effectively this means that Irish VAT registered importers will be in a position to self-account for the VAT due in their VAT return rather than paying import VAT upfront at point of entry into Ireland.

The introduction of postponed accounting will ensure that imports of goods from the UK, in a no-deal scenario, will be treated in the same way as goods currently acquired from the UK as intra-Community acquisition.

While postponed accounting has undoubtedly been introduced to relieve the cash flow impact on businesses that acquire goods from the UK following Brexit, it will also benefit businesses who import goods from other non-EU countries as the scheme will be available to all importers and not just for importers of goods from the UK.

As set out above postponed accounting will initially be available to all importers but the new legislation provides for the introduction, at a later date, of certain criteria and conditions which must be met by importers in order for them to continue to avail of postponed accounting on imports.

Where to now?

Whilst the terms of the UK’s withdrawal from the EU has not been finalised and at the time of writing it is still unclear whether there will be a ‘no deal’ scenario, if the withdrawal agreement will be ratified, or even if a second referendum or peoples vote will occur, the proposed Irish legislation deferring the timing of declaring the VAT liability is to be welcomed.

There are still however many other trade related issues which a business must consider and be ready to deal with. Has the business obtained an Economic Operators Registration and Identification (EORI) number which is required for all importers to deal with their customs obligations, is the business ready for these obligations, do the goods in question require a specific import licence? Has the business considered whether it could avail of one of the customs procedures or reliefs, what will the impact of the proposed new customs tariffs on the business be? To discuss any of these issues please contact your usual Deloitte advisor or one of the contacts below.