On 27 February, negotiations between the United Kingdom (UK) and the European Union (EU) reached a conclusion to create the “Windsor Framework”. The purpose of the framework is to refine post-Brexit arrangements in relation to the Northern Ireland Protocol (NI Protocol).
The NI Protocol sets out specific legal arrangements agreed by both the UK and EU to protect the institutions and implementation of the Belfast Agreement (also known as the Good Friday Agreement), including continued unfettered economic and trade links with the Republic of Ireland. However, the Protocol was criticised by parties on both sides of the agreement, and the UK and EU have been in negotiations over the past four months.
The Windsor Framework is made up of a number of important documents, including a UK Government Command Paper, a joint UK-EU Political Declaration, draft decisions to be taken by the Withdrawal Agreement Joint Committee, and unilateral measures to be adopted by each party.
Key changes of the Windsor Framework
Customs
New ‘green’ and ‘red’ lanes for goods based on an expanded Trusted Traders’ Scheme have been proposed.
The ‘green lane’ will be for goods that are intended for Northern Ireland as the end destination. The customs procedures and checks for goods that qualify for this lane will be reduced considerably, and the goods must be clearly identified as ‘Not for the EU’.
The new scheme is expected to significantly expand the number of businesses that can move goods using the green lane, as they will be classed as internal UK traders. This will involve three changes:
- Businesses throughout the UK, not just those with physical premises in Northern Ireland, will be eligible.
- The turnover limit for businesses involved in processing to move goods under the scheme will be quadrupled to £2m.
- 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.
The ‘green lane’ is expected to be brought into force in Autumn 2023. Labels for meat and dairy products will come into force from 1 October 2024, and all relevant products must be marked by 1 July 2025.
The ‘red lane’ will be intended for goods that can be sent further to the Republic of Ireland (i.e. to the territory of the European Union). More detailed information on the requirements for the ‘red lane’ will be revealed in due course.
Additionally, for traders moving goods from Northern Ireland to Great Britain, most export declarations will be removed.
VAT and Excise
At present, under the NI Protocol, EU rules for VAT and Excise apply to goods in Northern Ireland.
Under the Windsor Framework, it has been proposed that EU rules on VAT rates will not apply to a list of goods for consumption in Northern Ireland in certain circumstances. This means that the UK can bring forward legislation to apply the zero-rate of VAT to energy-saving materials in Northern Ireland (i.e. solar panels and heat pumps).
The changes would also allow a number of other flexibilities to enable UK-wide VAT changes to apply to Northern Ireland.
Governance
The Windsor Framework also includes a new democratic safeguard – the “Stormont Brake”– for ‘significant’ changes or new EU rules applied in Northern Ireland relating to customs, goods, and agriculture within the scope of the original NI Protocol.
The Stormont Brake will not be available for trivial reasons: there must be something ‘significantly’ different about a new rule, whether in its content or scope, such that it has a ‘significant impact specific to everyday life’ that is liable to persist.
The Stormont Brake includes a new process to trigger it, based on the “Petition of Concern” within the Belfast Agreement. What would follow is a consultation with local parties to ensure appropriate scrutiny measures are implemented for a restored Northern Ireland Assembly. Once the Stormont Brake has been triggered, the rule in question would be suspended pending agreement in the UK-EU Joint Committee.
Any dispute between the UK and EU over this would then be governed by independent arbitration – but accepting that a permanent veto of any rule could lead to the EU taking “appropriate remedial measures”.
Next steps
The Windsor Framework must now be voted on and passed by both sides of the UK parliament before it becomes law in the UK. The exact timeframe for this debate and vote has not yet been made official.
The framework will also require the Withdrawal Agreement Joint Committee to meet and adopt the draft decisions. The UK and EU must also pass aspects of the framework that require changes to domestic law respectively.
C+T will monitor the progress of the new agreed Windsor Framework as it develops. If you wish to discuss, require further information on the framework, or have any concerns with regards to the new customs and VAT procedures, please get in touch with our indirect tax team at VAT@ct.me, or contact our VAT Director, Iain Masterton, on 0131 558 5800.
