On January 1, 2021, the UK exited the EU VAT regime. Northern Ireland’s VAT rules, however, are subject to a temporary protocol governing the taxation of transactions between the EU and Northern Ireland (NI). The temporary protocol is a part of the Brexit Withdrawal Agreement, and will be valid for the next 4 years (and reexamined periodically).
The UK’s HMRC is the authority that collects VAT and duties on all goods in Northern Ireland. The temporary protocol that is in place stipulates that for VAT levying purposes, Northern Ireland will operate as a part of the EU. The EU will issue special VAT identification numbers to North Irish businesses, in order for companies to report and classify transactions between the EU and NI correctly. This covers both zero-rate B2B transactions and VAT exempt deliveries, as well as B2C distance selling or digital services for which companies use the MOSS VAT scheme.
After December 31, 2020, the EU has started issuing a XI area code for the VAT identification numbers of businesses in Northern Ireland and the UK. Companies in Great Britain (i.e. the UK excluding NI), will have a XU area code.
Let’s look at the different B2C transactions that are covered by the new protocol.
B2C Transactions from NI to the EU
At the moment, distance selling thresholds apply to B2C transactions from NI to the Republic of Ireland and to the rest of the European Union. For most countries, these limits are fixed at €35,000, with the exception of Germany, the Netherlands and Luxembourg, where the limit is €100,000.
Nevertheless, this will change after July 1, 2021, with the introduction of the new EU VAT package, and the current distance selling thresholds will no longer apply. NI sellers who have customers in Ireland or in the EU will be able to benefit from the One-Stop-Shop (OSS) scheme and file a single VAT return for their sales across the EU.
B2C Transactions from the EU to NI
Distance selling rules still apply to EU businesses who have customers in Northern Ireland. Under the threshold for distance sales, companies can use the VAT rate of their home EU country. Once they reach the threshold, however, they need to file for a UK VAT registration and file VAT returns to the HMRC. Once the EU VAT package is introduced after July 1, 2021, the threshold rules will change.
B2C Sales of Goods from GB to NI
For GB sellers, if the end customer is located in Northern Ireland, it’s the seller’s responsibility to charge, report and remit VAT to the HMRC. If they ship to an address in Ireland via NI, the goods are considered an import.
Additionally, the UK has introduced new VAT rules for e-commerce, which apply to both sellers and facilitating online marketplaces (OMPs) selling to end customers in NI and in the rest of the UK. For detailed information on these rules, you can read our article on the topic.
How Can Fonoa Help?
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Reach out to us and we will help you automate your taxes.