Brexit: The Northern Ireland Protocol

This article is part of a series of three articles on the implications of the Trade and Cooperation Agreement (the “TCA”) and Brexit on UK taxation from 1st January 2021, now that the transition period has ended.  

As noted in the first article of our series on Brexit tax implications, a fundamental impact of the TCA in respect of tax is the requirement for complex rules of origin to be met in order to secure zero UK / EU tariffs and duties when trading in goods.  Those rules require that goods must largely originate from the EU or UK which will depend on a range of factors.  Further details are outlined here. However, the TCA does not cover trade in goods between the EU and Northern Ireland (NI), which is governed by the Northern Ireland Protocol to the Withdrawal Agreement, both of which continue to apply to Northern Ireland.   

The result of these arrangements is that special and particularly complex VAT and customs implications now apply in respect of Northern Ireland which will require significant adjustment for business, particularly as goods entering Northern Ireland from Great Britain will still constitute imports from 1 January 2021.  To understand future EU/UK VAT and duty implications for movements of goods between Northern Ireland and the rest of the UK, it is therefore important to consider Northern Ireland’s unique position within both EU and UK VAT rules and the UK-EU agreed customs-related criteria (published 17 December 2020) for the determination of goods “not at risk” of entry to the EU Single Market.  This article outlines these new arrangements for Northern Ireland.  

Northern Ireland Protocol - who is in scope?

According to HMRC guidance, businesses will be treated as trading under the Protocol if they are VAT registered and either:

  • their goods are located in Northern Ireland at the time of sale;
  • they receive goods in Northern Ireland from VAT registered EU businesses for business purposes; or
  • they sell or move goods from Northern Ireland to an EU member state.

Businesses will need to be identified within HMRC’s VAT systems if they believe they are trading within the protocol, requiring notification to HMRC if not automatically identified. Notification will be required in order to be eligible for certain EU VAT simplifications and so that EU suppliers may zero rate goods that they dispatch to the business.  Further guidance on how to notify HMRC is to be published. Automatic identification will arise for businesses with a NI postcode for their VAT registered address and whose type of registered business is not solely the provision of services. 


Under the Protocol, Northern Ireland maintains alignment with EU VAT rules for goods.  The UK’s rules for intra-EU transactions in goods that applied before 31 December 2020 will therefore continue to apply to free circulation goods sold and transported to/from Northern Ireland to/from EU businesses and consumers from 1 January, without customs implications.  This, for example, includes current rules on distance selling, acquisition VAT whereby the same various accounting and administrative processes and reporting requirements (e.g. EC sales lists) will apply.  Intra-EU rules and simplifications, such as triangulation, not available for movements of goods involving Great Britain, will remain available for movements of goods involving EU member states and Northern Ireland or where the intermediary is identified as moving goods in, from, or to, Northern Ireland in the course of its business. 

Businesses trading under the Protocol will need to ensure they put an “XI” prefix in front of their UK VAT number (replacing GB) when communicating with EU customers/suppliers.  

Eligible businesses established in NI will also be able to use the EU’s cross border VAT Refund system to claim EU VAT refunds on invoices for goods (only) – invoices for both services and goods or just services will not qualify (the more onerous 13th VAT Directive process would need to be used instead).

Goods entering or leaving Northern Ireland to/from a non-EU country, including Great Britain, will also be subject to EU VAT rules and the Union Customs Code from 1 January 2021. In line with the Protocol, this is to avoid any customs checks and controls on the island of Ireland.  However this means that movements of goods between Great Britain and Northern Ireland will be treated for VAT and customs purposes as imports and exports.  

So, for example, when a UK VAT registered business moves its own goods from GB into NI, VAT will be due.   The business will have to account for VAT on the movement as if it had sold the goods to a third party, and then reclaim the VAT where the goods are used for taxable sales (subject to VAT recovery rules and certain adjustment rules for exempt businesses to avoid duplicated irrecoverable costs).  Conversely a business will not be required to account for VAT when it moves its own goods from Northern Ireland to Great Britain. Special rules will apply for VAT groups for example, when they move own goods from Great Britain to Northern Ireland where the disregard for such supplies between VAT group members will not apply. The practical application of these various measures is being developed in HMRC guidance.  

Although Northern Ireland remains aligned with EU VAT rules for goods, it will (confusingly) also remain part of the UK’s VAT system and customs territory, so NI traders will continue to file UK VAT returns. UK VAT rules related to transactions in services will apply across the whole of the UK and HMRC will continue to be responsible for the operation of VAT and collection of revenues in Northern Ireland.  Accordingly, the UK’s implementing legislation for the Protocol seeks to ensure that, in so far as is possible, the VAT accounting treatment for goods moving between Northern Ireland and Great Britain remains as close as possible to the pre-Brexit approach i.e. treated as UK domestic supplies rather than imports (where UK VAT would continue to be charged in respect of sales by the supplier, recoverable by a business customer). There are some further exceptions to this, for example, where the goods are declared into a special customs procedure on entry to the UK or subject to an onward supply procedure, or where a domestic reverse charge applies, and where goods are sold by an overseas seller through an online marketplace.  In these cases, the importer/customer/OMP of the goods moving between GB-NI should be liable to account for the VAT. 

Further complex VAT rules will apply for sales of goods transiting NI either to Ireland or to GB.  For those movements, the VAT treatment will depend on the specific arrangements agreed between the seller and customer and will broadly depend upon where the goods are situated at the point at which the transfer of rights to the goods takes place, so ownership terms and Incoterms in contracts may need revisiting to address the VAT implications.  

For example, HMRC states for goods in GB at the time of sale, sent from a UK seller to an EU customer via Northern Ireland, the UK seller should zero rate the goods on export to the EU but also include the import VAT due on entry to NI in the price it charges to the EU customer, accountable by the seller on their UK VAT return.  The EU business may then recover this VAT using the EU VAT refund system, unless they have a UK VAT registration and can recover on their UK VAT return.  Different rules apply if the goods are moved GB-EU and are declared into a special customs procedure on entry to NI (including transit, whereby import VAT (if any) should be payable in the EU country where the goods leave such procedure, or an Onward Supply procedure (e.g. where import VAT is relieved and the EU customer should account for acquisition VAT). Conversely, EU sellers moving goods sold via Northern Ireland to Great Britain will have to register for UK VAT and charge and account for the UK import VAT due on a UK VAT return. The UK customer will then be able to reclaim the VAT as input VAT, subject to the normal rules.  Alternatively, where a UK seller moves goods from GB-NI then supplies those goods to an EU customer after that point (so they are in NI at the time of sale), this will be treated as two distinct movements.  The first will be treated as a movement of own goods and will follow the new process for businesses moving their own goods from GB-NI. The second movement will be an EU intra-Community sale and would follow EU rules.

Second-hand goods bought in Great Britain to be re-sold in Northern Ireland will not be in scope of the Northern Ireland VAT second-hand margin scheme that applies under the Protocol; meaning that sellers will have to account for the VAT on the full value of the goods, rather than only on the profit margin.  Given this detriment to certain business sectors and their customers, the UK’s Command Paper on The Northern Ireland Protocol indicates there are on-going discussions on this issue.  Margin schemes will remain available for sales of goods in NI that were purchased in Northern Ireland or the EU. Margin schemes will also remain available for sellers in Great Britain selling stock originally purchased in Northern Ireland or Great Britain (but not outside GB).

Northern Ireland retailers, who use the VAT Retail Export Scheme, will be able to continue to operate it in Northern Ireland, but VAT RES will not be available to retailers in Great Britain.  Additional conditions will apply for goods purchased in Northern Ireland and removed to Great Britain.  HMRC provides further guidance in this respect, as well as for other matters such as personal exports of vehicles from NI-GB.  There will also be VAT implications where goods are moved between a GB fiscal warehouse and an EU/NI fiscal warehouse.


Broadly, the UK and EU have agreed:

  • no EU customs duties should be payable if goods entering Northern Ireland (including from Great Britain) are “not at risk” of entering the EU's Single Market 
  • no UK duties should generally be payable on internal UK trade between Great Britain and Northern Ireland; and
  • export and exit declarations should not be required in most cases in respect of the movement of goods from Northern Ireland to Great Britain, save in limited circumstances, such as for goods not in free circulation/under special customs procedures, and for the movement of certain categories of high risk goods falling within procedures relating to specific international obligations binding on the UK and the EU (e.g. endangered species).  The EU however expects that any alternative/flexible means of collecting the relevant data for customs authorities should be equivalent to export declarations. 

In effect, there will be an asymmetrical border, whereby no customs formalities should be required for moving goods from NI to GB but customs formalities will be required for GB – NI shipments, to be collected at NI ports.  The UK’s new Trader Support Service can help in respect of imports to Northern Ireland.  

Goods “not at risk” 

The UK/EU Withdrawal Agreement Joint Committee have agreed a number of conditions for determining when goods brought into Northern Ireland should be considered “not at risk” of onward movement into the EU.  This was published on 17 December as Decision 4/2020.  The Decision also includes criteria as to when goods brought into Northern Ireland may not be considered as subject to “commercial processing” in Northern Ireland.  This is because the Protocol provides that goods would automatically be considered at risk of entering the EU market if they have been brought to NI for “commercial processing”, which are complex widely drawn rules to include any alteration or transformation of the goods.   However, the Decision now sets out certain flexibilities in this respect, removing certain processing activities in certain sectors from the default position where the intention is for genuine consumption in NI, and which can therefore still qualify as “not at risk” – described as “non-commercial processing” in the Decision.    

The result of the Decision is that there is now a multiple stage test in order to be able to declare that any goods are “not at risk” of entry to the EU Single Market when brought to Northern Ireland (NI).  If the goods are “not at risk”, zero EU tariffs/duties will apply and instead, only UK tariffs/duties will apply in respect of non-GB/non-EU goods brought into NI.  

In order to be able to declare goods as “not at risk” on customs declarations, businesses and their advisers first need to consider whether they can meet the “non-commercial processing” condition, which helps retailers, supermarkets etc., but which many other businesses such as manufacturing may struggle to meet.  Then, they will need to consider two additional and different “not at risk” tests, depending on whether the goods have been brought into Northern Ireland by direct transport from GB or from outside both GB and the EU.  Some of those tests will require the comparable tariff rates between the EU and UK to be assessed.  

In the case of goods brought from GB, the additional test requires (i) that the applicable EU tariff/duty needs to be zero, including for goods originating in the UK that meet the TCA’s rules of origin, OR, as a further alternative (i.e. even if the EU tariff is above zero/irrespective of origin), (ii) that the goods are for sale to, or final use by, end-consumers located in the UK and are brought into Northern Ireland by a trader authorised under the UK Trader Scheme (including where the good has been subject to non-commercial processing before its sale to, or final use by, end-consumers).

For goods brought from both outside GB and the EU (i.e. non-originating under the TCA), the additional test requires (i) that the applicable UK duty payable is equal to or higher than the applicable EU duty payable, OR, (ii) that the goods are for sale to, or final use by, end-consumers located in Northern Ireland and are brought into NI by a trader authorised under the UK Trader Scheme (including where the good has been subject to non-commercial processing before its sale to, or final use by, end-consumers) AND the difference between the EU duty payable and the UK duty payable is less than 3% of the customs value of the good in question.  In such event, the trader may not declare that such goods are not ‘at risk’ and EU tariffs would apply.

According to the Decision, “non-commercial processing” in Northern Ireland includes where the importer had a total annual turnover of less than £500,000 in its most recent complete financial year, or where the processing is for the sole purposes of the sale of food to end consumers in the UK, as well as for certain activities in Northern Ireland such as construction, direct health and care provision, and not for profit activities, and final use of animal feed at NI premises by the importer.  More guidance from HMRC is to follow in this respect. 

In circumstances where the above tests cannot be met at the time of import, e.g. because the outcome of a particular contract/project on final use in NI/GB is unclear, such that the goods cannot be declared “not at risk” at such time, HMRC’s guidance suggests other options for mitigating or deferring payment of EU tariff rates/duties.  These include looking at eligibility for a duty/tariff waiver, subject to de-minimis State Aid limits (up to €200,000 over 3 tax years) – this is only for GB-NI movements but may be an easier option for some traders, and the use of existing customs special procedures to suspend duty payments, such as customs warehousing and inward processing, provided the relevant conditions can be met.  The UK’s Command Paper states that HMRC will support the increased use of Inward Processing relief to allow goods to be processed and sold outside the EU tariff-free but further details are to be provided.  In addition, where goods have attracted EU duties but can then be proven to have remained in the UK customs territory, measures will allow for exemptions, or a potential reimbursement of those duties paid.  Again, further guidance is pending in this respect.

As stated in the UK’s Command Paper, there will also be an overall emergency brake mechanism for these new provisions if either the EU or the UK considers there is significant diversion of trade, or fraud or other illegal activities.  Each of the UK/EU can inform the other by August 2023 whereby they would then seek to put in place suitable replacement arrangements.  In the absence of a mutually satisfactory resolution and in the event the Joint Committee does not decide before 1 April 2024 to continue their application, these provisions on “goods not at risk” will cease to apply from 1 August 2024 and if this were to occur, the Joint Committee is tasked with finding an alternative solution as of 1 August 2024. 

In view of the short time given to adapt to the new arrangements, a grace period to April 2021 has been given in respect of customs declaration requirements for the movement of goods in parcels by express carriers and the Royal Mail Group from GB to NI.  This is to help businesses and NI consumers adapt to the new arrangements in the first few months of 2021.

UK Trader Scheme

As mentioned above, HMRC’s new UK Trader Scheme forms part of the “not at risk” tests which will allow authorised businesses to declare that the goods they are bringing into Northern Ireland are “not at risk” of onward movement to the EU, and therefore not liable to EU tariffs/duties.
The origin of goods brought into Northern Ireland from Great Britain does not affect the ability to be authorised under the UK Trader Scheme but the authorised trader would need to hold sufficient evidence to declare the goods being brought by direct transport to NI are for the purpose of sale to, or final use by, end-consumers located in the UK (or in NI, for non-GB/non-EU goods), and are therefore not intended for, and genuinely ‘not at risk’ of, onward movement to the EU, e.g. a sale for the good in a retail store in NI.  Traders will need to keep supporting evidence for each consignment into NI, accessible for at least 5 years. Types of evidence to support a not ‘at risk’ declaration include the following, which would need to be provided to HMRC on request: commercial receipts and invoices, VAT invoice, commercial contracts and purchase orders, delivery receipts, consignment note (CMR), proof of installation, electronic records, proof that goods comply with rules of origin. 

Where the goods being brought to NI are going to be subject to processing, traders will need to meet the additional “non-commercial processing” criteria when applying for UK Trader Scheme authorisation and before declaring those goods as “not at risk”, – i.e. the £500,000 turnover threshold for the importer, or confirming that the relevant processing is solely for approved processing purposes (e.g. food for sale in the UK) as outlined earlier.   The purpose is to ensure the scheme is only available for use in respect of non-processed goods which can be shown to remain in GB/NI for final use/consumption by end consumers.  Newly established businesses will need to provide records approved by the directors, partners or sole proprietor, to enable an assessment of anticipated turnover. For example, latest cash flow, balance sheet and profit and loss forecasts. Once authorised, traders must continue to comply with the conditions or risk their authorisation being suspended or revoked.

The UK Trader scheme will be open only to businesses established in Northern Ireland, or GB businesses who meet certain closely linked criteria requiring indirect customs representation in NI and a relevant fixed place of business in NI.  This may mean many GB businesses may not qualify and this could have cash-flow implications for contracts imposing e.g. DDP Incoterms on GB suppliers where they cannot use the scheme.  The scheme also includes safeguards to ensure that it is not available to those with serious criminal records or existing compliance issues and to prevent abuse.  The EU states that it will have access to the list of trusted traders and will be able to monitor the scheme's implementation closely.  

In view of the short preparation time that has been given to adapt to these new NI arrangements, traders can request provisional authorisations under the Trader Scheme until February 2021, granted under certain conditions. 

Low value goods 

As noted in our second article of this series, a new VAT model now applies for the sale of certain goods to UK consumers by overseas sellers or via an online marketplace (OMP).  The rules for Northern Ireland are unique and slightly convoluted but the following principles may be summarised as drawn from HMRC’s latest guidance: 

  • new rules will apply for imports of low value consignments (i.e. of goods valued at £135 or less) to NI;
  • imports of low value consignments into NI from outside both GB and the EU for B2C transactions will be subject to import VAT, however this will be accountable on the UK VAT return by the seller or OMP (if facilitating the sale), rather than being payable by the recipient at the border (as could be the case for consignments over £135).  B2C VAT invoices from sellers/OMPs will not be required according to HMRC for goods sold in Northern Ireland from outside the EU.
  • for B2B transactions involving low value consignments into NI from outside both GB and the EU, there will be no new reverse charge rule (unlike in GB).  Instead, the UK VAT registered business customer would be liable for the import VAT due, regardless of whether the sale is a direct sale or through an OMP.  HMRC guidance states that postponed VAT accounting will be compulsory for these movements. 
  • for B2C transactions involving movements from Great Britain, OMPs will be responsible for accounting for the VAT due (via its VAT return) for B2C sales of goods of any value owned by non-UK sellers, in the following circumstances:
    • goods located in Great Britain at the point of sale are supplied to a Northern Ireland customer.
    • goods located in Northern Ireland at the point of sale are supplied to a Great Britain customer.
  • As for GB rules, OMPs will not be liable for the VAT due on B2B sales where the goods are located inside the UK at the point of sale.  For such sales, the OMP would need to notify the overseas seller that the seller should account, providing details of the recipient’s UK VAT number and of the sale.  The business customer must be validly UK VAT registered - if no UK VAT number is provided, the sale should be treated as a B2C transaction.  
  • For goods located in Northern Ireland at the time of sale and sold to NI customers, the seller remains liable to register and account for the UK VAT due irrespective of OMP involvement. The OMP will not be required to register and account for the VAT nor to provide details of B2B sales, but existing rules for joint and several liability would continue to apply. 

Consignments of goods of a value over £135 or containing excise goods or non-commercial goods (e.g. gifts) between private individuals will remain subject to normal import rules rather than the above new model.

UK internal trade – unfettered access for goods from NI to GB

In addition to the above changes, the UK is also implementing a qualifying NI goods regime in a phased approach to the UK’s implementation of ‘unfettered access’ for NI established businesses to the rest of the UK market. Essentially, it is intended that there should be no customs and import VAT requirements in Great Britain for goods moving from NI save in certain circumstances (e.g. for goods falling within certain processes e.g. endangered species, for excise duty goods moving from EU to GB through NI, for which declarations would be required, or where there is an avoidance purpose).  As noted earlier, the requirement to submit export/exit declarations in NI for NI-GB movements should also be limited.

From 1 January 2021, the first phase of unfettered access is a light touch approach which applies to qualifying goods (including excise) in free circulation in Northern Ireland which move directly to GB or indirectly to GB via Republic of Ireland in certain circumstances, supported by anti-avoidance rules to prevent abuse (e.g. re-routing of goods which started its journey in an EU country into GB through NI, to avoid UK tariffs and duties).  A long-term regime will be implemented in the second half of 2021 which is to focus its benefits on those businesses genuinely established in Northern Ireland and the UK’s Command Paper indicates that this will identify “qualifying” traders via auto-enrolment as they ‘check in’ in the usual way at ports and airports. Further detailed guidance on this regime will be published in due course, its objective to ensure a free flow of qualifying Northern Ireland goods to Great Britain with no import declarations, duties and no UK import VAT and with limited checks/exceptions, but with some changes for qualifying goods moved indirectly through Republic of Ireland ports or when using transit processes.

Meanwhile, HMRC have been developing and trialling new IT platforms to track the movement of goods across the Irish Sea and deal with customs procedures in a streamlined way, e.g. the “Goods Vehicle Movement Service” (GVMS), which will provide hauliers a requisite goods movement reference for GB-NI movements.


HMRC has put together a range of guidance and materials for the Northern Ireland Protocol arrangements, setting out further details on the various processes and criteria to be met and these should be reviewed and monitored by all affected businesses. For immediate actions, VAT-registered businesses trading in Northern Ireland or between NI and the EU should (i) notify HMRC so they can continue to account for EU VAT on acquisitions and dispatches, (ii) substitute an XI prefix in place of GB for their VAT numbers when dealing with EU customers/suppliers and get an XI EORI number for goods movements between NI and non-EU countries, and (iii) complete EC sales lists and Intrastat returns when trading goods from Northern Ireland to VAT registered customers in the EU.  Affected businesses should also register with the HMRC’s new Trader Support Service for customs representation support in respect of moving goods into NI and where eligible, look at applying for authorisation as soon as possible under the UK Trader Scheme irrespective of their goods origin (ideally before February 2021, to get a provisional authorisation for NI imports for up to 4 months).

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