Beneficial VAT change for Own Use Goods to NI

Moving Own Use Goods from the GB to Northern Ireland for Non-Business use – a change for Universities, Charities & Public Bodies 

After the UK’s withdrawal from the European Union (EU) – 31 December 2020 - there were certain VAT related arrangements put in place to deal with the movement of own use goods from GB to Northern Ireland (NI) – set out under the Northern Ireland Protocol. These were there to reflect that – for VAT purposes – NI was still a part of the EU in the context of the movement of goods. It means that when a UK VAT registered entity was moving goods it owned itself, from GB to NI, it had to account for VAT as Output Tax on the movement of the goods in NI. 

Entities that had non-business activities then found themselves in the situation that; whether they had imported the goods originally into the UK or bought them from a UK source; they had incurred VAT on that cost and this VAT was not recoverable as it related to a non-business activity in the UK. 

If they then moved these own use items from the GB to NI they also had to “pay” output tax over to HMRC on the cost of the items through their UK VAT Return – meaning that they were again facing a VAT cost in paying VAT to HMRC on the movement of their own use goods. 

Therefore, they had paid irrecoverable VAT on the original cost of the items and then had to “pay” VAT again, if they moved these own use goods across to NI, where they would continue to be used for non-business activities, and therefore block VAT recovery again on the VAT adjustment charge triggered.

 HMRC have announced a solution to remove the “double taxation” arising in these circumstances. There are some worked examples in the Business/Non-Business guidance here to help illustrate the new position. 

The change is not that the Output Tax adjustment is no longer needed as the own use good move from the GB to NI – that VAT still needs to be included in Box 1 of the VAT return - but that the VAT value, incurred on the purchase or import of the goods, is reclassified as relating to a taxable supply ( a zero rated export, as it were) and in that way, this input tax can be coded for recovery.

Conditions: 

For the goods leaving GB are to receive the same VAT treatment as a zero-rated export, despite being an internal UK movement, all the following conditions should be met: 

• the goods were supplied to, or were imported by, the business that removed them from GB to NI
• that business is a taxable person for VAT purposes and has incurred irrecoverable VAT on the purchase/import of the goods in GB, because the goods relate either wholly to the person’s non-business activities or to both business and non-business activities.
• the goods must either not have been used before removal to NI, or, if the goods have been used in GB before their removal, their use in NI must be for the same purpose as in GB (i.e. they must remain for non-business use if used for non-business purpose in GB)
• the goods are moved to NI within 12 months of the irrecoverable VAT being incurred
• the removal of the goods must not be as part of a supply of those goods to another business
• VAT incurred on the removal of goods from GB to NI is non-deductible as input tax 

This is a welcome step change in the VAT treatment of own use goods for such affected bodies although we accept that is a quite specific relief. It’s important to be alert to where it could have an impact though and is certainly a point to note for our Not For Profit clients such as universities and charities in general who may support programmes in NI as well as mainland GB. 

Help in ensuring you track and make to correct VAT recovery is only an email away at IndirectTax@Xeinadin.com or by calling us on 0330 124 7740.

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