What does the Windsor Framework mean for UK businesses in the next 6 months?
The relaxation of trading rules announced in the Windsor Framework has been welcomed by many. Whilst the framework has to be accepted by the Joint EU committee along with the respective governments, its ratification will mean that UK businesses need to prepare for new processes in the next 6 months.
Red and green channels
Importing goods into Northern Ireland has been complex and time-consuming for UK businesses.
For many GB-based businesses, the fact that they have to complete full customs declarations to enter goods into Northern Ireland has resulted in the withdrawal of sales as the time and cost have proved commercially unviable.
The proposed changes to the import processes look to streamline the import of goods, especially those subject to additional certification requirements, but there are still potential concerns that UK businesses need to be aware of.
- Only importers who have a UK Trader Scheme (UKTS) authorisation will be able to use the Green Channel.
- Goods entered via the Green Channel must only be for use in Northern Ireland and may need to meet additional labelling requirements (e.g. for Retail/Supermarket)
- Entry via the Green Channel allows for goods, subject to SPS certification, to enter under the cover of a General Certificate issued by the UK authorities.
- Any goods that are ‘at risk’ of entering the EU will have to be moved through the Red Channel and incur the existing measures under the NI Protocol such as full certification and customs declaration via TSS.
- Groupage Loads are a common form of shipment into NI and this will determine the effectiveness of the Channel system as any load which contains goods that may be ‘at risk’ of entering the EU will result in the whole consignment being moved through the Red Channel
Enhanced UK Trusted Trader Scheme
This is the key measure announced which facilitates the relaxation of rules and one which all businesses trading with Northern Ireland must concentrate on during the next few months as it will involve new processes and enhanced diligence.
HMRC carried out an exercise in late-2022 to contact UK businesses who had declared goods, via TSS, stating ‘not at risk’ and therefore waiving the requirement to pay EU customs duties. As a result, UK businesses who ‘import’ into Northern Ireland and are within the existing UK Trader Scheme (“UKTS”) should automatically have the required authorisation needed to use the Green Channel for goods that are ‘not at risk’ of entering the EU.
However, within the Framework, there are additional obligations on the UKTS holder to ensure that they:
- Demonstrate adequate record keeping in relation to the movement of the goods (which must be retained for at least 5 years).
- Records on goods movements (into NI) should allow for cross-checks between records relating to purchases, sales, stock control and movement of the goods.
- Maintain an understanding of their clients to ensure that the criteria within the UKTS can be met. This will be via contracts, declarations and evidence of sales and will require regular reviews.
- Require that a responsible person has a clear understanding of the administration of the UKTS and the obligations for sending goods to NI.
The UK will, as part of the new data-sharing agreement, be required to audit UKTS holders and report to the EU that satisfactory controls are in place. UKTS holders must have the necessary records and knowledge in place otherwise they could be subject to both EU customs duties and penalties. The EU has made it clear that failure to implement UKTS can result in this vital part of the Framework being withdrawn so it is crucial that this is successful.
Movement of Parcels
Under the Framework, the temporary measure, which has been applied since 12th January 2021, will be made permanent to allow the shipment of parcels (valued below £135) without the requirement to submit a full customs declaration via TSS.
This decision will please Northern Ireland consumers, e-commerce and the courier and parcel delivery services as it allows the existing processes to continue. It ensures that, for most shipments, goods can be shipped without the need for additional customs formalities and will ensure that e-commerce sales continue in the same manner as sales to other parts of the UK.
The UK will monitor the compliance of this process by approving ‘Authorised Carriers’ and applying necessary controls to ensure compliance with the Framework.
VAT and Excise rates harmonised within the whole of the UK
One of the key surprises related to VAT which was widely thought would remain in place. Northern Ireland’s unique position of access to the EU meant that it was closely bound by EU VAT rules and legislation and for example, could not benefit from the recent announcement to introduce a 0% VAT rate for the installation of heat pumps and solar panels, which was being enjoyed by Great Britain consumers.
The Framework announces that consumers in Northern Ireland can immediately benefit from 0% VAT for work on land such as the installation of solar panels and heat pumps.
Additionally, Excise Duty changes will also now be harmonised and is a departure from the EU directing rates for Northern Ireland.
For movable goods, it’s less clear that the agreement will produce any greater freedoms for the UK to set new zero rates in Northern Ireland. That will be subject to the UK and EU agreeing via a joint committee ‘a list of goods not being at risk of entering the EU and which would not be subject to EU VAT rules‘.
It’s difficult to imagine what those goods might be. For example, suppose the UK wanted to introduce a zero-rate for Electric Vehicles (EVs) – that could be done in Great Britain, but as cars are naturally at risk of entering the EU, it couldn’t be done in Northern Ireland. Given the political sensitivity of setting different VAT rates in Great Britain from Northern Ireland, this part of the agreement could be seen to tie the UK more closely to EU VAT rates.
When the UK applies its own VAT exemption scheme for small enterprises, they will now need to respect EU rules on the annual turnover threshold. The EU rules set a maximum domestic threshold of €85,000, so this means that in Northern Ireland at least, there is no prospect of a future rise in the current VAT registration threshold of £85,000. Assuming that the UK wishes to keep a national threshold, this concession to the EU ties the government’s hands significantly.