Brexit Update: Food & Beverage – Tax
21 March 2019
Last month the Irish Government took further steps to mitigate a ‘no-deal Brexit’ by publishing draft legislation, the “Withdrawal of the UK from the EU (Consequential Provisions) Bill 2019” - to address those matters that require immediate attention now. It is the Government’s intention to deal with all other tax matters later in the year in the Finance Bill.
A significant aspect of the Withdrawal Bill focuses on proposed changes to Irish tax legislation including income tax, corporation tax, stamp duty, VAT and capital acquisitions tax. In general, the proposed legislative changes should ensure continuity in access to reliefs and exemptions (including group payments relief and group stamp duty relief) for corporate groups that contain UK entities by extending the relevant definitions from the EU/EEA to include the UK. This is a welcome development and brings a degree of certainty for those planning corporate transactions in 2019 and beyond.
VAT measure to mitigate cash-flow burden post-Brexit
Significantly the withdrawal bill proposes to introduce a system of postponed accounting for import VAT.
This is intended to alleviate the cash-flow impact on businesses as a result of the UK’s status as a third country and the resulting requirement for businesses to pay VAT at the point of import, rather than at the time they file their bi-monthly VAT returns. The scheme will apply to all traders for a period. Continued qualification for postponed accounting will depend on Revenue authorisation from a later date to be agreed.
Many Irish companies in the food and beverage sector which trade currently with the UK, particularly small and medium-sized enterprises (SMEs), will welcome the proposed changes regarding VAT.
HMRC has also published guidance recently where it states that it plans to operate the postponed system of accounting for VAT which currently applies in the UK (and Ireland) to the intra-community acquisition of goods from the EU, in the event that the UK falls outside the EU VAT regime. This means that UK businesses importing goods to the UK should be able to account for import VAT on their VAT return, rather than paying import VAT upfront on the arrival of goods into the UK. This is certainly welcome news as the postponed accounting should only be an administrative exercise for businesses that have full VAT recovery on those imports and not cause a cash flow issue.
VAT 56 Authorisation
The VAT 56 Authorisation is a very useful cash flow mechanism for many businesses operating in the Food and Beverage sector. The authorisation allows business predominately engaged in the export of goods from Ireland (in excess of 75% of total annual turnover) to receive goods and services at the zero rate of VAT.
The Withdrawal Bill proposes to tighten the conditions needed to qualify for the regime such that a business can only apply based on its turnover in the 12 months prior to application for the authorisation. Currently, businesses apply for the authorisation based on projected turnover figures for the coming 12 months. As a result, newly established businesses will have to wait at least 12 months before applying for the authorisation. It is understood that the proposed changes are aimed at businesses establishing supply chains through Ireland in light of a possible no deal Brexit.
The Withdrawal Bill also proposes that the holder of the authorisation will need to be tax compliant across all tax heads during the authorisation period and that Revenue can cancel the authorisation where it determines that the holder no longer meets the qualifying criteria. Businesses who currently hold the authorisation should be aware of increased potential issues should the proposed legislation be enacted.
Calculate your Customs Duty (Import Tariffs)
While the delayed accounting regime is certainly welcome news for import and export businesses in the Food and Beverage sector that have a UK dimension, it is not possible to provide relief with regard to the new customs duty charges (import tariffs) that will arise in no deal Brexit scenario.
Intertrade Ireland’s website contains a useful facility which can assist in providing an indication of the customs dutieshttps://www.mhc.ie/expertise/food-agriculture-beverage which may apply on the import and export of goods between the UK and Ireland which are relevant for your business. Please click here for details.
For a more in-depth discussion on the operation of the VAT and customs duty regimes in Ireland and the UK, read our November 2018 article Preparing for Brexit – Customs Duty and Import VAT Explained
For more information on the impact of Brexit on your business, contact a member of our Food, Beverage & Agriculture team
The content of this article is provided for information purposes only and does not constitute legal or other advice.