To address this, the Windsor agreement secures substantive, legally binding changes in the new arrangements, ensuring that Northern Ireland will benefit from the same VAT and alcohol taxes as apply in the rest of the United Kingdom. This will mean that straight away, through changes to Annex 3 of the original Protocol, the UK Government can 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.
The agreement also makes further changes to protect Northern Ireland’s place in the UK’s VAT area:
- 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 current uncertainty
- It exempts Northern Ireland businesses from a range of EU rules( the need to register for VAT under a 2025 EU Directive, avoiding a range of other new burdens on SMEs, and divergence with Great Britain)
- And it establishes a brand 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
Overall these changes to the text of the original Protocol guarantee Northern Ireland’s position within the UK’s VAT and excise area according to the UK, while still maintaining frictionless arrangements for those businesses trading with the EU - granting Northern Ireland businesses the ability to benefit from new UK changes, and ensuring that Northern Ireland households can benefit from the UK’s Brexit freedoms.
In order to eliminate the delays at the borders, new green lanes will be established. Green lanes will allow:
- Goods from Great Britain with a final destination of Northern Ireland to enter Northern Ireland with vastly reduced checks and paperwork.
- Goods to be moved from Northern Ireland to Great Britain without export declarations.
- Faster movement of goods in both directions, largely aided by new data-sharing and labelling arrangements.
Goods destined for the EU (most likely via the Republic of Ireland) will instead be diverted through red lanes. Red lanes will still be subject to the current checks and administrative processes.
We will need to wait for confirmation of the precise rates, rules and regulations the UK will set for VAT in Northern Ireland, but expect changes to be made to current systems.
Daniëlle van der Meulen-Idema
Sr. VAT Specialist
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