The Windsor Framework – VAT and Customs changes
3 March 2023| CATEGORIES: Brexit, Northern Ireland Protocol, The Windsor Framework| TAGS: Brexit, Customs, Northern Ireland, VAT
The UK Government has reached an agreement in principle with the EU, aimed at addressing post-Brexit problems with the Northern Ireland Protocol.
This agreement, the Windsor Framework, replaces the old Northern Ireland Protocol, dealing with the issues it has created and providing a new legal and UK constitutional framework.
It delivers free-flowing trade in goods between Great Britain and Northern Ireland through a new green lane.
Customs changes
The Windsor Framework establishes a new “green lane” for goods moving from Great Britain to Northern Ireland based on an expanded trusted trader scheme. The aim of this is to cut considerably the necessary customs procedures and checks on goods. Goods using the “green lane” will need to be labelled “Not for EU”. Under the “green lane” minimal checks will remain based on risk assessments and intelligence to prevent smuggling and other criminal activities.
The agreement significantly expands the number of businesses able to be classed as internal UK traders and move goods as ‘not at risk’ of entering the EU through three important changes:
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- First, businesses throughout the United Kingdom will now be eligible – moving away from the previous restrictions that required a physical premises in Northern Ireland.
- Secondly, the turnover threshold below which companies involved in processing can move goods under the scheme which they can show stay in Northern Ireland will quadruple from the current £500,000 limit up to £2m, meaning four-fifths of manufacturing and processing companies in Northern Ireland who trade with Great Britain will automatically be in scope.
- Thirdly, even if firms are above that threshold, they will be eligible to move goods under the scheme if those goods are for use in the animal feed, healthcare, construction and not-for-profit sectors. They will be able to do this even as intermediaries or if they sell on the eventual product, which is a significant improvement to the existing arrangements. Inputs into food production will continue to benefit from inclusion in the ‘not at risk’ definition.
For those in the scheme who can show that their goods will stay in Northern Ireland, there will be a radically simplified process for goods movements, underpinned by the existing Trader Support Service (TSS). To do this the system will draw on existing data that businesses already hold and provide about the type of goods they are moving, allowing goods to move seamlessly East-West:
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- The movements will use ordinary commercial data, with information provided to TSS based on data from sales invoices and transport contracts;
- There will therefore be no requirement to provide the burdensome customs commodity code for every movement;
- Goods will automatically be treated as internal UK movements for tariff purposes, with no rules of origin requirements;
- There will be no customs checks, except for risk-based and intelligence-led operations targeting criminality and smuggling; and
- Once a good has moved, there is no further process involved – scrapping the requirement for businesses to provide the hugely burdensome, 80-field supplementary declaration, for every single goods movement, after goods had arrived in Northern Ireland.
For those traders unable to access the “green lane”, a new tariff reimbursement scheme is to be established for those traders which can demonstrate that their goods did not ultimately enter the EU, supplementing the existing customs duty waiver scheme. Goods destined for the Republic of Ireland will continue to undergo full EU customs checks.
For traders moving goods from Northern Ireland to Great Britain, most export declarations have been removed.
Parcels
Northern Ireland consumers ordering from GB businesses will be able to continue to order and receive goods through the post, the same as the rest of the UK with no customs declaration required. Parcels sent between businesses will be able to move through the “green lane”, where the goods are remaining in the UK.
The UK Government will work with parcel operators and HMRC to ensure any risks to the EU single market are dealt with. Parcel operators will have to regularly submit standard commercial data to HMRC, that they hold as a matter of routine such as the place of delivery, when moving parcels to a consumer.
VAT & Excise
Under the Northern Ireland Protocol, EU rules for VAT and excise apply to goods in Northern Ireland in order to avoid a hard border in Northern Ireland. Those rules have prevented the Government from applying VAT and excise changes UK-wide, with future EU rule changes likely to increase that divergence further. Under the revised rules set out in the Windsor Framework, EU rules on VAT rates will not apply to a list of goods for consumption in NI in certain circumstances.
This will mean that the Government can now bring forward legislation to ensure that Northern Ireland will be able to apply zero rates of VAT to the installation of energy-saving materials such as heat pumps and solar panels – rectifying the disparity between Great Britain and Northern Ireland.
And it ensures that reforms to alcohol duties, due to take effect this summer, will apply right across the UK from the outset.
The agreement also makes further changes to permanently protect Northern Ireland’s place in the UK’s VAT area:
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- It removes the limit on the number of reduced and zero rates in Northern Ireland, ensuring parity across the United Kingdom.
- It delivers full flexibility on rates in the future, by establishing new categories that can be applied for VAT purposes where goods are consumed in Northern Ireland.
- It protects Northern Ireland’s second-hand car market into the future with a new scheme to take effect from 1 May 2023, ending two years of uncertainty for traders and consumers.
- It exempts Northern Ireland businesses from a range of bureaucratic EU rules: saving 2,000 Northern Ireland businesses from needing to register for VAT under a 2025 EU Directive; and avoiding a range of other new burdens on SMEs, and divergence with Great Britain.
- And it establishes a new mechanism enabling the UK and EU to look at future EU rule changes and make further legally binding changes to resolve any distortive impacts that new EU red tape could cause.
What does this mean for businesses?
No specific timeframe is given for the implementation of the Windsor Framework.
HMRC have advised businesses that:
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- no action needs to be taken yet and goods should continue to be moved into and out of Northern Ireland in line with current rules and guidance;
- relevant guidance will be updated in due course, and businesses will be given time to prepare for the new requirements.
Current guidance can be found at: