On 27th February 2023, the UK Government and the EU reached a new agreement, known as the Windsor Framework, to change some elements of the previously agreed Northern Ireland Protocol, which came into effect on 1^st January 2021. The Protocol was required in order to avoid a hard border post-Brexit between the Republic of Ireland (an EU Member State) and Northern Ireland (part of the United Kingdom, now non-EU) for the movement of goods. It is important to note that Northern Ireland will remain in the EU for VAT purposes relating to goods at this time.

The Windsor Framework’s main function is to facilitate trade in Northern Ireland, and to fix current issues with the Protocol, since the region has experienced difficulties since the United Kingdom left the EU single market, mostly due to increased paperwork and vigorous customs controls.

This new amendment to the Protocol will see the introduction of so-called green and red lanes for goods being sent to Northern Ireland from Great Britain, whereby goods sent via the green lane will be subject to random spot-checks only, where conditions are met.

With the removal of trade restrictions between Northern Ireland and Great Britain, there will be a new freedom for movements of goods, such as of medicines, chilled meats and pets.

In terms of VAT, several areas are expected to be impacted by the updates to the Protocol, including:

1. Freedom for the United Kingdom to decide upon reduced VAT rates within Northern Ireland, for example, on goods to be installed into immovable property (which therefore will not leave Northern Ireland). This includes goods such as heat pumps for houses, or wind turbines for residential properties. Other categories of goods will also become subject to the reduced VAT rate, since if these goods are not destined for the EU, the reduction of the VAT rate on same will not have a financial impact on EU resources.

2. A list of goods which are not at risk of entering the EU, and thus which shall not be subject to EU VAT rules, is expected to be drawn up. The list would be valid for 5 years at a time, and would be subject to periodic review.

3. The UK will not be obliged to apply the special EU VAT scheme for small business’, which will come into force on 1^st January 2025 and will exempt small business’ from VAT, subject to an EU wide threshold of EUR 100,000 per annum. The purpose of the scheme is to reduce compliance costs, and it will support SME who trade both domestically, and cross-border within the EU.

Should the UK chose to apply the scheme, it will however have to adhere to the EU set threshold, in order to allow a fair playing ground for EU-established SME.

The Windsor Framework is considered to be a welcome step towards an improvement in relations between the UK and the EU, which have been tense since Brexit, and should allow Northern Ireland to benefit from simplified trading with Great Britain, whilst still allowing it the benefits of trading goods within the EU single market.

Should you wish to discuss the impacts of the Windsor Agreement on your supply chain with one of our consultants, please click here