Article: Trading in Northern Ireland, and the Windsor Framework

In this article we look at how the Windsor Framework amends the Northern Ireland Protocol and proposes changes to the trading of goods from Great Britain to Northern Ireland, changes to VAT rules and new governance mechanisms.

Contents

Introduction

On 27 February 2023, the UK Prime Minister, Rishi Sunak, and European Commission President Ursula von der Leyen announced a new "Windsor Framework" which amends the existing Northern Ireland Protocol. The Windsor Framework includes changes to the trading of goods from Great Britain (GB) to Northern Ireland (NI), amendments to VAT rules, arrangements for the movement of parcels, and new governance mechanisms.

What are the key dates to consider if the agreement is approved? 

Whilst initial details around the Windsor Framework have been announced it is important to remember that none of the changes which have been published will take place with immediate effect. The new requirements set out in the framework will be implemented on a phased basis beginning with the introduction of red and green lanes for freight which is expected to take effect from September 2023. These requirements will be extended to business-to-business parcel movements from October 2024.

From an SPS (Sanitary and Phytosanitary) perspective, labelling requirements on meat, fresh and dairy products will be introduced from October 2023. This will be extended to all dairy products by October 2024 and other food products such as fruit and vegetables from July 2025.

What are the Green Lanes? 

As part of the Windsor Framework the UK and the EU have agreed on the introduction of a green and red lane for goods entering Northern Ireland. When discussing green and red lanes, it is important to note that this will not be a physical lane, but a term used to describe the level of customs requirements that a shipment will face depending on which lane the goods align with.

Under the new requirements, there will be a greater reliance on live data sharing as opposed to custom declarations for monitoring the movement of goods into Northern Ireland. Businesses that import goods that are "Not At Risk" of entering the EU will be eligible for membership in a new trusted trader scheme known as the UK internal Market Scheme. This will enable businesses to avail of the green lane model for moving goods into Northern Ireland. When using the green lane businesses will no longer be required to pay tariffs, complete customs declarations, or provide confirmation of the country of origin.

Under the new requirements, there have also been some changes to the rules around commercial processing. As a result of the Windsor Framework businesses that undertake commercial processing and who have a turnover of less than £2 million or are involved in the following sectors will be eligible to apply for the new UK internal market scheme:

• Animal Feed
• Healthcare
• Construction
• Not for Profit

What are Red Lanes?

Any goods which enter Northern Ireland from the rest of the UK which are bound for the EU including Ireland, or any goods which are deemed to be "At Risk" of entering the EU, will enter via the red lane.

When goods travel through the red lane full EU customs checks, paperwork and controls will apply, also including the payment of tariffs. Businesses that move goods through the red lane but whose goods do not subsequently enter the EU will be able to make use of a new tariff reimbursement scheme that will be launched by HMRC in the coming months to claim back any relevant duties paid.

What does declaring goods "At Risk" mean?

Following the introduction of green and red lanes any goods which are "At Risk" will be required to follow the red lane model. As a result, they will be required to comply with full EU customs requirements including supplementary declarations upon entry into Northern Ireland. The requirements for goods moving through the red lane will be very similar to the current requirements in place for "At Risk" goods moving from GB to NI / Ireland-EU.

What is the "Stormont Brake"?

The Windsor Framework includes a new safeguard which is referred to as the Stormont Brake which has been designed to suspend the implementation of new EU rules on goods in NI applicable as a result of the NI Protocol. The Stormont Brake will allow the NI Assembly to veto (accept or reject) the update of, or in addition to, the small subset of EU laws applicable in Northern Ireland if such as change is expected to have a persistent or significant impact specific to everyday life.

What does the Windsor Framework mean for parcel movements from GB to NI?

Another consideration for businesses is the movement of parcels from GB to NI. Under the terms of the Windsor Framework, the definition of goods "At Risk" has been changed which means that NI consumers ordering from GB businesses (B2C) will not be required to complete customs declarations. Parcels that are sent from business to business (B2B) will move through the green lane model. The current grace period on parcel movements will continue until new arrangements are in place from October 2024.

What does the Windsor Framework change for VAT and excise?

Under the existing Northern Ireland Protocol, Northern Ireland is subject to EU VAT and excise rules in relation to goods. 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. This will allow NI businesses to apply zero rates of VAT, in particular, the current 5% rate of VAT being applied in NI on energy-saving materials (solar panels and heat pumps) would be cut to 0% to align with the rest of the UK. The UK Government has described this as having "full flexibility" on VAT rates in the future by establishing new categories that can be applied for VAT purposes where goods are consumed in Northern Ireland.

Is apportionment still available to me?

The short answer to this is yes. Until the red and green lanes have entered into effect all existing approaches to managing the amount of customs duty that you will be required to pay as a business remains in place. If you are using apportionment you should continue to ensure that you keep records of all goods which have been declared "Not At Risk". This should include all sales receipts, and records should be retained for at least the next five years.

At this stage, there has been no confirmation on whether apportionment will continue following the introduction of the red and green lanes, however the UK Government has confirmed that they will be launching a new tariff rebate scheme where businesses who declared their goods as "At Risk" but where these goods were found to have stayed in Northern Ireland will be able to apply to recover the costs of any tariffs they have paid.

Whilst registrations have yet to open for this scheme it will be imperative that businesses wishing to use the rebate scheme have developed the records that provide visibility of what goods are coming in and where they are sold. This should be made a priority now in advance of the scheme coming live.

What schemes are available, or do I wait for guidance?

As part of the establishment of red and green lanes the UK Government will be launching a new UK internal Market System which will allow eligible traders to use the green lane for importing goods from the rest of the UK. There will also be a new tariff rebate scheme that will allow businesses who declare goods as being "At Risk" and subsequently end up not entering the EU to claim a rebate for any tariffs paid. Each of these schemes has yet to launch. However, it is anticipated that they will go live during the Autumn of 2023.

Prior to September 2023, it is important that businesses continue to ensure that all supplementary declarations are completed on time and all goods are correctly declared as being "At Risk / Not At Risk".

Further information

GOV.UK have published the full text of The Windsor Framework: A new way forward and a series of PDF document sector explainers.
The European Commission have published a downloadable PDF Windsor Framework factsheet.

Article reviewed: April 2023