On Monday 27 February, the UK and the EU agreed a deal in principle to make changes to the Northern Ireland Protocol.  

The new deal, referred to as the Windsor Framework, is designed to: 

• restore the smooth flow of trade within the UK internal market (paras 9–27);
• safeguard Northern Ireland’s place in the Union (paras 28–55); and
• address the “democratic deficit” (paras 56–72).

The deal will be subject to a vote in parliament, though timings of any vote are yet to be confirmed. 

Although the framework will have wide-ranging effects on Great Britain, Northern Ireland and the EU, this article focuses on the VAT and duty implications.

Goods movements 

The Windsor Framework establishes a new UK internal trade scheme, based on commercial data-sharing rather than international customs processes.  

Under the existing Northern Ireland Protocol, a framework exists that allows goods to move from Great Britain to Northern Ireland tariff-free. If the goods do not fall within that framework, they are treated as if moving across an international border. In that case, full customs declarations are required. 

This agreement puts new arrangements in place through a new UK internal market system (or “green lane”) for internal trade. Goods being sold in Northern Ireland will not be subject to “unnecessary paperwork, checks and duties”. 

The new scheme will significantly expand the number of businesses able to move goods using the green lane by being classed as internal UK traders. This will involve three changes: 

1. businesses throughout the UK, not just those with a physical premises in Northern Ireland, will be eligible;
2. the turnover limit for businesses involved in processing to move goods under the scheme will be quadrupled to £2m; and
3. those with turnover above the threshold 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. 

Businesses in the scheme that can show their goods will stay in Northern Ireland will gain access to a simplified process for goods movements, using ordinary commercial data rather than customs data. This is underpinned by the existing Trader Support Service. 

Goods moving to the EU will be subject to normal third-country processes and requirements.  

VAT and excise 

Under the existing Northern Ireland Protocol, Northern Ireland is subject to EU VAT and excise rules in relation to goods. This has prevented changes, such as the introduction of a VAT zero rate for energy-saving materials, from being applied UK-wide. 

The Windsor Framework amends the legal text of the protocol to ensure that Northern Ireland will be subject to the same VAT and excise rules that apply in the rest of the UK. It will allow Northern Ireland to apply zero rates of VAT to the installation of energy-saving materials and will also ensure that the planned reforms to alcohol duty can apply UK-wide. 

The agreement makes further changes to permanently protect Northern Ireland’s place in the UK’s VAT area by removing the limit on the number of VAT rates allowed in Northern Ireland and allowing full flexibility on future VAT rates.  

It also aims to protect Northern Ireland’s second-hand car market, with a new scheme to take effect from 1 May 2023. 

Further reading 

• The Windsor Framework - GOV.UK (www.gov.uk)