A summary of the main challenges facing business trading in Northern Ireland (NI) are as follows.
Dual customs and VAT status for NI goods
Following the end of the Brexit transition period on 31 December 2020, NI has taken up a dual position in the EU Customs Union, Single Market and VAT regime as well as in the UK’s equivalents for goods only. However, the reality is that NI is in the EU sphere, and clashes are appearing where goods cross into GB. The rules of engagement for this were contained within the Northern Ireland Protocol, which accompanied the January 2020 Withdrawal Agreement which, in turn, sealed the UK-EU exit terms.
The aim was to avoid the needs for border controls between NI and the island of Ireland (IE) instead, moving any checks onto the goods moving between GB and NI with an eventual EU destination to the GB/NI border.. So, while the term ‘border in the Irish Sea’ has become popular, it is actually a border at the NI ports.
In addition to avoiding the need for an IE-NI border, the NI Protocol enabled the UK to diverge from the EU regulatory regime. This is something which had not been envisaged in the Theresa May ‘backstop’ proposal whereby the UK would remain in the Customs Union for a period.
How should the protocol work?
The regulatory and tax operation of the Protocol for goods is as follows:
- goods supplied in NI are subject to the EU Single Market regulations;
- goods moving from GB to NI are checked at the NI ports for customs, regulatory controls and VAT obligations;
- EU tariffs are chargeable only on goods moving GB-NI seen as ‘at risk’ of later moving into the EU (see below); and
- EU VAT rules apply on certain transactions involving a NI-EU movement; UK domestic rules would apply on GB-NI movements.
NI being inside the EU customs union and UK union means businesses can get free access to both markets. Practically though, it is in the EU customs region. And this means that where the two touch, particularly GB to NI movements, it is already causing friction (see below).
Oversight of the implementation and changes to the above are carried out by a series of joint bodies, with an overarching Joint Committee, to consult on issues, and work to resolve differences. Services are outside of this regime, and come under the governance of the TCA, with normal third-country VAT and customs rules.
The ‘at risk’ duties headache
Paperwork and regulatory checks on GB to NI aside, the question of whether or not to levy EU tariffs on GB-NI movements is proving the most challenging. The aim of the Protocol was for the joint bodies to come up with a definitive list or criteria that business could use to identify their goods as subject to the new customs duties. In December, preliminary guidance was confirmed (Decision of the Withdrawal Agreement Joint Committee on the determination of goods not at risk, 17 December 2020, see bit.ly/3t4JyzW). This set the tariffs as nil if for sale in NI or the EU’s own tariffs were zero too. If the UK’s tariffs were higher than the EU’s, then no tariffs either. This still isn’t working smoothly, and HMRC will make any refunds in an as-yet undefined procedure.
The good news is that goods moving from GB to NI may avoid EU tariff payments with help of HMRC. Businesses which believe the goods will not be ‘at risk’ of moving to the EU may apply to join the UK trader scheme to be exempted. An application may be made via Gov.uk (see bit.ly/3aOjz9P).
Possibly the only reliable source of information is HMRC’s Trader Support Service, which is free online/phone help service for UK businesses trading goods between GB and NI. This includes up-to-date guidance on checks and declarations, plus some help on completing them.
Goods checks prove first flashpoint
Since NI has remained in the EU Single Market, EU regulatory rules apply to NI goods. This means border controls are required on the GB-NI movements. However, the Joint Committee had agreed to phase these in for a number of food sanitary and phytosanitary checks (SPS) from 1 April 2021.
However, due to the complexities of checks and delays in infrastructure upgrades at NI ports, the UK unilaterally announced in early March that it will delay by six months SPS controls on many products to prevent serious disruptions. The EU immediately launched formal infringement procedures against the UK for ‘breaching the substantive provisions of the Protocol on Ireland and Northern Ireland’ in the Brexit Withdrawal Agreement as well as the ‘good faith obligation’ under that deal.
Fixing the insoluble customs problem: go Swiss
The realities of some need for basic paperwork and checks due to the NI Protocol design was unavoidable. It is a border – that means differences in rules and taxes which need to be policed to avoid abuse, tax avoidance and the integrity of sovereign markets. However, NI’s fragile peace settlement may seem to make this insoluble as the UK seeks to diverge from the EU.
But there are answers. The most obvious is a Swiss-style which lowers SPS checks and includes mutual recognition of agricultural standards. Alternatively, checks could be limited to ‘at-risk goods’. More radically, a system of mutual customs and goods checks could be done by both sides – not just the UK on its movements to NI. This would be a big pill for the EU to swallow, but may emerge under UK pressure.