Countdown to Brexit - VAT & Customs

With only days remaining to the end of the transition phase, is your business ready?  

Major VAT and Customs changes are effective from 1 January 2021 regardless of whether a Free Trade Agreement is agreed or not between the EU and the UK over the coming days.

Below is a list of some of the key issues and actions Irish businesses need to consider to ensure that they are ready for 1 January 2021:

• Impact on the Supply Chain: Review and map the movement of goods into and out of the UK to understand the potential for disruption to supply chains caused by Brexit and actions to mitigate disruption. Both tariff and non-tariff costs should be reviewed.

• Do you trade with NI? Under the NI Protocol, NI will remain part of the EU VAT regime and Customs Union for goods only. Normal Intra-EU Community VAT rules will continue to apply to such trade with the prefix “XI” applying instead of “GB” for VAT number identification on invoices and statistical declarations.   

• Are you registered for Customs? An EORI number is required to allow a business to export goods from ROI to the UK and import goods from the UK into ROI.   

• What rate of Customs Duty applies? Customs Duty is not recoverable and is an additional cost for businesses. Customs Duty should apply to the import of goods into ROI from the UK and vice versa. Accurate assignment of the applicable rate of Customs Duty needs to be clarified from a budgetary perspective. Should there be a No-Deal Brexit, WTO Customs Duty rates will automatically apply from 1 January 2021.  

• Are you in a position to file Customs Declarations? A non-tariff cost of the changes is the length of time and the cost of getting goods physically cleared at the relevant borders and filing of the relevant Customs Declarations. Customs Declarations (Import and Export Declarations) will be required to physically move goods from ROI to the UK and vice versa. The accurate and timely filing of such declarations is vital for speedy customs clearance. The key question for business is: Are you going to complete Customs declarations in-house or employ a clearance agent? Either way a business must put the necessary process and controls in place to ensure the accurate and timely submission of the relevant Customs Declarations. 

• VAT on Importation: Postponed accounting for VAT will apply to all importation of goods from 1 January 2021. This is a significant cash flow saving measure where businesses will no longer pay VAT at importation but will self-account for any VAT due through the relevant VAT return (e.g. An Irish business purchases goods from the UK in January 2021, it will pay no VAT on importation and include/self-account for any VAT due as part of its January/February 2021 VAT return).

• Can you avail of any VAT and Customs Reliefs? Businesses need to consider whether they can avail of any reliefs which can delay or reduce the VAT and Customs impact. Such reliefs include the use of a Customs Warehouse, Inward processing relief etc.

• Contracts: Commercially all contracts need to be reviewed to understand and quantify the impact the VAT and Customs changes will have on your business. This must include a review of a contract’s Incoterms (international commercial terms) to establish who is responsible for the filing of Customs Declarations, Customs clearance, payment of Customs Duty, etc.  

• ERP System Impact: Businesses should assess what changes will be required to their ERP/financial systems and the cost of same to take account of the new VAT and Customs Duty requirements and changes outlined above.

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For more information on the above or for general advice on this topic, please contact a member of our Tax Group or our Brexit Team.

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