Exploring supply chain arrangements of Northern Ireland businesses trading with Great Britain

Question 1

Glossary

Accepted Answer

Abbreviation or term	Definition
EORI number	Economic Operator’s Registration and Identification Number. An EORI number is provided by HM Revenue and Customs (HMRC) to businesses who move goods between the UK and non-EU countries. From 1 January 2021, it will be needed to move goods between Great Britain and the EU and it will also be needed to move goods to Northern Ireland.
Northern Ireland Business Guidance	The Northern Ireland Business Guidance was published on GOV.UK on 7 August 2020 and provided information on the Northern Ireland Protocol and on the introduction of the Trader Support Service. The guidance has subsequently been updated and the previous guidance archived.
NISRA	Northern Ireland Statistics and Research Agency
VAT registered business (and non VAT-registered business)	Businesses must register to pay VAT if their VAT taxable turnover (the total of everything sold that is not VAT exempt) goes over the £85,000 threshold. A business can choose to register even if they are not earning above the threshold. If they have not registered, they are a non VAT-registered business.

Question 2

1.  Executive summary

Accepted Answer

1.1 Introduction and background

The UK left the EU on 31 January 2020 and entered into a transition period which will last until 31 December 2020. From 1 January 2021, the Northern Ireland Protocol (the Protocol) will take effect. There will be special provisions which apply only in Northern Ireland while the Protocol is in force. This means that businesses based in Northern Ireland trading with Great Britain (England, Scotland and Wales) may be required to submit different declarations and follow different processes when moving goods between Northern Ireland and Great Britain.

The research aimed to explore the supply chain arrangements of micro, small and mid-sized Northern Ireland-based businesses who trade goods with Great Britain (either buying goods from businesses in Great Britain or selling goods to them). It sought to demonstrate the differing levels of complexity of supply chains, and to understand how important the market in Great Britain was within those supply chain arrangements. It also sought to explore how well businesses understood what the impact of the Protocol will be at the end of the transition period on 31 December 2020, and whether businesses had taken any action to prepare, or plan to take any.

HMRC commissioned Ipsos MORI to explore these research questions. A total of 40 telephone interviews were conducted with businesses based in Northern Ireland who were trading goods with Great Britain between 13 August and 28 September 2020. Twenty-five interviews were conducted with VAT-registered businesses, which were recruited from a sample from the HM Revenue and Customs (HMRC) VAT database. Fifteen interviews were conducted with non VAT-registered businesses, which were recruited from a separate quantitative survey.

Businesses were recruited based on specific quotas relating to business size and sector, as well as other criteria (please see the Appendix for further information). Case studies were developed to inform reporting of key findings, as some businesses exemplified key findings from the research clearly, particularly in relation to supply chain arrangements and goods movements.

1.2 The importance of the market in Great Britain within supply chains

Most of the VAT-registered businesses we spoke to both bought goods from, and sold goods to, businesses or consumers in Great Britain. However, we know from the NISRA data that overall, there are a greater number of VAT-registered businesses who are buyers from Great Britain than sell there. In line with this, most of the non VAT-registered businesses we spoke to also bought goods from Great Britain, but did not sell goods there. Many were Northern Ireland-based service providers buying goods from Great Britain which were then used as inputs into the service (such as paint, gardening supplies.) However, some were online retailers and, in those cases, they did sell goods to Great Britain and to the EU or ‘rest of the world’.

Great Britain was considered a vital market for businesses in Northern Ireland, especially small to mid-sized businesses with complex supply chains in the manufacturing sector which tended to trade higher proportions of goods with Great Britain.

Businesses offered a number of reasons for choosing to trade with Great Britain. These included access to a wider range of suppliers and customers within close proximity, reliable quality of goods, low sourcing costs, faster transport of goods compared with EU or ‘rest of the world’, and simpler administration requirements than trading with EU or ‘rest of the world’.

Knowledge about the origin of goods purchased from Great Britain was higher among businesses with complex supply chains and those with traceability and technical specification requirements for their goods. They tended to be small and mid-sized manufacturers of, for example, chemicals or foods. Knowledge of the end destination of goods sold to Great Britain was also higher among these businesses.

1.3 Opportunities to develop trade with other markets

A number of businesses, in particular some small and mid-sized manufacturing businesses, had identified opportunities to expand their trade with businesses in Great Britain. They reported that this would allow them to reduce reliance on EU suppliers, as they assumed it would become harder to trade with the EU, as well as to benefit from faster and cheaper transport. In the retail sector, small businesses considered there was untapped potential for increased sales to customers in Great Britain.

Several businesses, which were already trading globally and were familiar with the complexities of developing trade relationships in the EU and ‘rest of the world’, had also identified opportunities to expand sales in both markets. Further, a number of online retailers, both VAT and non VAT-registered, considered extending their sales to ‘rest of the world’ countries, particularly if they were trading in products with Irish cachet or where they believed that the additional income would outweigh increased online platform trading costs. For a handful of businesses, the proximity of the Republic of Ireland was a logical reason to also consider this market for supplier or sales developments.

1.4 Routes and transport used

Nearly all of the VAT-registered businesses interviewed, especially those with complex supply chains and businesses moving goods on a frequent basis, used hauliers to transport goods to their customers. This is because they were considered to have superior knowledge and expertise of routes and transport methods which meant that businesses did not need to hire and train staff to perform these functions. Other intermediaries such as freight forwarders and customs agents were seen to reduce the administration burden for businesses by completing specialist customs paperwork for trading outside of the EU.

Where hauliers were used, businesses’ detailed knowledge about routes used for goods movements varied across the sample. Businesses with complex supply chains, or those moving goods on a frequent basis, or both were more knowledgeable about routes taken to transport their products to customers. For movements to Great Britain, many businesses were aware that hauliers transported their goods via Dublin or Belfast ports to customers in England, arriving in either Liverpool port in England or Holyhead port in North Wales. From there, they would be transported to customers by road. For customers in Scotland, goods were routed direct from Belfast to Cairnryan port (previously known as Stranraer Port).

For movements to EU or ‘rest of the world’, businesses were aware that hauliers transported goods to customers via Great Britain. They assumed this was because it was cheaper and more time efficient to use Great Britain as a ‘land bridge’ than to move goods direct from EU to Northern Ireland.

The transport methods used for goods movements were influenced by the complexity of the supply chain, the nature of the product or the requirement for quick delivery. As above, most goods were transported to Great Britain by sea and this was also the case for customers in EU or ‘rest of the world’ where goods travelled via Great Britain as a ‘land bridge’. However, a couple of businesses were aware that goods were transported by air including one business (case study 3) that needed to move valuable goods quickly to customers in the EU. Some online retailers using fast parcel operators, such as Royal Mail, assumed that some of their goods may have also been transported by air, but couldn’t be certain this was the case.

In contrast, a smaller number of businesses didn’t use hauliers to transport their products to customers in Great Britain or EU or ‘rest of the world’. These were typically businesses with less complex supply chains, including sole traders, micro businesses and other non VAT-registered businesses. Instead they used fast parcel operators, such as Royal Mail, to move the goods to their customers. Further, for businesses whose customers were based in the Republic of Ireland, goods were usually transported by road, and a small number of businesses had their own vehicles and directly organised delivery to customers.

1.5 Awareness of Northern Ireland Business Guidance and Trader Support Service

Businesses were asked about their understanding of the changes that would take effect at the end of the transition period, and whether they were aware of the Northern Ireland Business Guidance published on 7 August 2020^{[footnote 1]}. Many businesses expected there would be some changes to their trading and movements of goods between Great Britain and Northern Ireland at the end of the transition period. In particular, many expected changes to paperwork for goods moving both between Great Britain and Northern Ireland, as well as between Northern Ireland and Great Britain.

However, most businesses had done little to prepare and it was mainly businesses with more complex supply chains who had tried to find out more information. They referred to having conversations with business representative organisations based in Northern Ireland. Some had also spoken to customers and suppliers to discuss the ways to mitigate the changes they expected at the end of the transition period. Whilst 2 VAT-registered businesses were aware of the Northern Ireland Business Guidance and understood that this meant they would need to make some changes to trading with Great Britain, they were not aware of any detail.

Businesses were shown 3 extracts from the Northern Ireland Business Guidance and asked for their prompted reactions. The first extract described the overall impact of the Protocol, the second extract introduced the Trader Support Service and the third extract provided information on registering for the Trader Support Service and obtaining an EORI number.

Reactions to the first extract demonstrated a lack of detailed understanding of the Protocol by the majority of businesses interviewed. Some felt that the ‘no changes’ sounded reassuring, but many reported they expected that the level of impact on them would depend on the outcome of the negotiations with the EU.

Reactions to the second extract were mixed. Whilst some businesses were reassured by the existence of the Trader Support Service, others were sceptical that it would be relevant to them or that the Trader Support Service would be able to handle all the ‘formalities’ it described without some involvement from businesses. Whilst most said they would consider registering for the Trader Support Service, non VAT-registered businesses were less likely to understand its relevance for them.

Reactions to the third extract revealed that the majority of sole traders and micro businesses, especially non VAT-registered traders, were confused about the need for EORI numbers. Among these businesses there was a lack of understanding about the relevance of an EORI number and a lack of urgency about the need to take any action. Several reported that they thought EORI numbers would only be relevant for businesses trading in agricultural or food products, or dangerous goods. Many businesses reported being concerned about the application process and what level of involvement this would require. Businesses who had already applied for, or already possessed, an EORI number were mainly small and mid-sized businesses with complex supply chains who were already trading with ‘rest of the world’, or had become aware of this requirement during previous EU Exit negotiations, or both.

1.6 Expectations for the future

Businesses generally fell into 2 key groups in terms of their expectations for the future.

A ‘wait and see’ group of businesses, primarily those with simpler supply chains, or non VAT-registered businesses, or both were prepared to continue with their current business model. They reported they would decide what, if any, actions they would take once they had experienced trading under ‘new rules’ in 2021 and were more aware of the longer-term impact of the COVID-19 pandemic on their business. However, some were tentatively considering a number of options they believed it might become necessary for them to take. These included: replacing suppliers in Great Britain with more local ones, rerouting goods being transported to ‘rest of the world’ markets to avoid Great Britain, and in some cases, closing their business if their trade became badly affected by the changes.

A smaller ‘prepared to take action’ group consisted of mainly mid-sized businesses in the manufacturing sector with complex supply chains. One business planned to set up a base in Great Britain to produce goods to avoid delays to their EU sales. This business had cash reserves with which to build the base and was willing to bear the burden of cost increases if required. Other businesses with significant resources were actively exploring potential opportunities to build trade with new markets, such as with EU businesses. In many cases they had had, or were preparing to have, conversations with suppliers and customers to agree actions to take at the end of the transition period.

Question 3

2.  Introduction

Accepted Answer

2.1 Background and aims of research

The UK left the EU on 31 January 2020 and entered into a transition period which will last until 31 December 2020. From 1 January 2021, the Northern Ireland Protocol will take effect. There will be special provisions which apply only in Northern Ireland while the Protocol is in force. This means that businesses based in Northern Ireland that are trading with Great Britain (England, Scotland and Wales) may be required to submit different paperwork and follow different processes when moving goods between Northern Ireland and Great Britain.

The research aimed to explore the supply chain arrangements of businesses based in Northern Ireland who trade goods with Great Britain (either buying goods from businesses in Great Britain or selling goods to them). It sought to demonstrate the differing levels of complexity of supply chains, and to understand how important the market in Great Britain was within those supply chain arrangements. It also sought to understand how well businesses understood what the impact of the Northern Ireland Protocol will be at the end of the transition period. Further, it explored views on extracts from the Northern Ireland Business Guidance published on 7 August 2020^{[footnote 1]}, and whether businesses had taken any action to prepare, or planned to take any.

2.2 Methodology

HMRC commissioned Ipsos (formerly Ipsos MORI) to explore these research questions. The study used qualitative research which explores key themes and the diversity of views and experiences as well as the factors which shape them. This research included a range of business sectors and business sizes (excluding large businesses). We identified key themes emerging across these criteria, but the number of interviews achieved in each sector varied, making this more challenging in some cases. We explored the full end-to-end supply chain, in order to understand how complex or simple they were, and what that meant for those businesses.

A total of 40 telephone interviews were conducted with businesses based in Northern Ireland between 13 August and 28 September 2020. Twenty-five interviews were conducted with VAT-registered businesses based in Northern Ireland trading goods with Great Britain and these businesses were recruited from an HMRC VAT database sample. Fifteen interviews were conducted with non VAT-registered businesses trading with Great Britain. These businesses were recruited from a separate quantitative survey commissioned by HMRC to Ipsos MORI that aimed to estimate the proportion of non VAT-registered businesses in Northern Ireland that trade physical goods with Great Britain, either as goods buyers or sellers^{[footnote 2]}. The businesses we interviewed had agreed to be recontacted for further research.

The VAT-registered businesses included in the research were randomly selected from a sample of businesses from the HMRC VAT database. It was not known whether the businesses traded goods with Great Britain, and therefore they were screened to identify those who did. They were also taken through a further set of questions to identify and confirm the following information: the business size, sector, trader type, business turnover, trading frequency with Great Britain, value of goods bought from and sold to Great Britain, and whether they used intermediaries for moving these goods.

Quotas relating to business size were included (micro, small and mid-sized businesses) with a minimum of 10 interviews achieved across each quota. Quotas relating to business sector were included and 12 interviews were achieved in manufacturing, 5 interviews achieved in agricultural, and 10 interviews achieved in the retail sector. A spread of interviews in other sectors was also achieved. Quotas were also included on trader type, turnover, value of goods bought and sold from Great Britain and use of intermediaries, with the aim of getting a good spread in each category. Sector quotas were based on NISRA 2017 to 2018 data on VAT-registered businesses selling (goods and services) to Great Britain, by selecting the top sectors they sell to.

Detailed information on the quotas achieved can be found in the Appendix.

Each interview lasted one hour, and all respondents were the business owner or managing director or someone who could talk knowledgeably about business supply chains and decision making in relation to trading goods. All companies were still trading, although may have been impacted by the COVID-19 pandemic to some extent, and this was explored in the research.

2.3 Interpretation of the data

Qualitative research explores key themes and the diversity of views and experiences as well as the factors which shape them. The results of qualitative research are therefore designed to be illustrative and not statistically representative.

In this research a range of business sectors and business sizes were interviewed. Key themes emerged across these criteria, but the number of interviews achieved in each sector varied, making this more challenging in some cases.

Case studies have been used to illustrate the individual experiences of different types of businesses and the different complexities of their supply chains. Four case studies are included, which provide some profiling information about their business sector, size, their trade with Great Britain, the impact of the COVID-19 pandemic on their business trading, and detail about their supply chains, including routes and transport methods used to move goods.

Case study 1 was a mid-sized manufacturer of food products with a fairly complex supply chain, which both bought and sold a high proportion of goods to Great Britain. The business’ production stopped during the initial lockdown (March to mid-June 2020), but they reopened, and production was nearly back to normal by the time they were interviewed.

Case study 2 was a vehicle dealership (retail and wholesale) with a relatively simple supply chain. This was a good example of a business almost completely reliant on Great Britain for the inputs they purchased. Lower consumer confidence resulting from the pandemic had impacted their sales and they were closely monitoring its long-term impact on their ability to continue trading.

Case study 3 was a stock-raising agricultural business and had a relatively complex supply chain. The business sourced stock from Great Britain whilst most of their sales were made to wholesalers in the EU. This business’ sales had been severely reduced due to the closure of the hospitality sector and they were hoping that turnover would return to normal levels in 2021.

Case study 4 was a non VAT-registered online retailer of gifts with a simple supply chain, who bought all their supplies from Great Britain and sold around half of their products to Great Britain. This business’ online sales had benefited from recent changes in consumer shopping behaviour during the initial lockdown (March to mid-June 2020).

Question 4

3.  Understanding Northern Ireland-based businesses which trade goods with Great Britain

Accepted Answer

This chapter sets out the profiles of the Northern Ireland-based businesses which trade with Great Britain that we spoke to as part of this research. It looks at the goods they trade, the complexity of their supply chains, and the reasons why the market in Great Britain is important to them. To follow-on from this, Chapter 4 sets out details of 4 case studies of businesses trading with Great Britain which exemplify key findings from the research clearly, particularly in relation to supply chain arrangements and goods movements.

3.1 The importance of trading with Great Britain

Most of the VAT-registered businesses we spoke to both bought goods from, and sold goods to Great Britain. However, we know from the NISRA data that overall, there are a greater number of VAT-registered businesses who are buyers from Great Britain than sell there. Most of the non VAT-registered businesses we spoke to in the research bought goods from Great Britain but the proportion of sales to Great Britain varied across sectors, with most not selling there.

The market in Great Britain was a key focus for sourcing goods across several sectors. Businesses we spoke to across all sectors bought goods from Great Britain. In particular, those in manufacturing and agriculture bought a substantial amount of their inputs from Great Britain. Businesses in these sectors with complex supply chains, such as food manufacturers, sourced a wide range of ingredients from Great Britain. In the retail sector, we spoke to 2 vehicle dealerships who sourced the majority of their secondhand vehicles from Great Britain.

There were mixed levels of awareness of the source of origin of goods. Small and mid-sized businesses with complex supply chains, and businesses in the manufacturing sector (especially food and chemicals) were more knowledgeable where traceability was important, or the business required more detailed technical information because of industry regulations. Non VAT-registered businesses were less likely to have detailed knowledge and assumed any mass-produced goods sourced from Great Britain originated in East Asia. This was easier to confirm if the source of origin was listed on the product or packaging.

Most VAT-registered businesses we spoke to also sold the majority of their goods to customers in Great Britain. This was the case across manufacturing and agricultural sectors. However, for businesses with complex supply chains, other markets in EU and ‘rest of the world’ were also prominent. In contrast, most of the non VAT-registered businesses we spoke to bought goods from Great Britain but did not sell goods there. Many were Northern Ireland-based service providers buying goods from Great Britain which were then used as inputs into the service (for example, paint and gardening supplies). However, some were online retailers and, in those cases, they did sell goods to Great Britain and EU or ‘rest of the world’.

Knowledge about end destination of goods varied across businesses in different sectors and size. Awareness was higher among small and mid-sized businesses, especially manufacturers selling foods or regulated products, businesses distributing goods on behalf of clients, online retailers selling goods to individual consumers and goods staying in Northern Ireland or being used to provide a local service. Awareness was lower among non VAT-registered businesses selling online directly to customers.

3.2 Reasons why Northern Ireland-based businesses trade with Great Britain

Great Britain was often described as a vital market by businesses who offered many reasons why they traded there. Many businesses had traded with Great Britain for a number of years and established long-standing relationships with suppliers and customers through a combination of factors, including:

a wider range of suppliers and customers in Great Britain
suppliers in Great Britain provided goods with consistent and reliable quality
the proximity of Great Britain enabled fast transport of goods compared with EU or ‘rest of the world’
a wide range of businesses found Great Britain to be less expensive than Northern Ireland when sourcing goods
the administration and trading of goods was easier in Great Britain

Looking at each of these in turn, the larger population in Great Britain provided access to a wider range of suppliers and customers than were available solely in Northern Ireland.

In terms of the consistency of the quality of goods from Great Britain, this was important for businesses with complex supply chains (for example manufacturers producing a high volume of goods on a frequent basis). It was also important where quality was an important facet of the manufacturing process, such as in food production.

The proximity of Great Britain enabled fast transport of goods compared with EU or ‘rest of the world’. Goods transported by fast parcel operators were also easier to track than other markets. Fast delivery was especially important for food manufacturers sourcing or selling goods with a limited shelf life.

In terms of sourcing goods, a wide range of businesses found Great Britain to be less expensive than Northern Ireland. Other markets had been impacted by recent deteriorations in EU exchange rates, and sourcing from EU or ‘rest of the world’ resulted in higher transport costs. Non VAT-registered businesses could not afford to source goods in bulk from East Asian markets and found prices offered by suppliers in Great Britain were more competitive than prices offered by suppliers in Northern Ireland for small volumes. In addition, the lack of customs processing and import duties on goods from Great Britain reduced prices of these goods compared with goods in the EU or ‘rest of the world’.

The administration and trading of goods was easier in Great Britain compared with in the EU or ‘rest of the world’ because of the ability to claim back VAT. Further, setting up contracts with companies in Great Britain was more straightforward because of the legal system, English language and cultural similarities.

3.3 Trading with other markets

Businesses we spoke to with more complex supply chains, particularly businesses in the manufacturing sector, also purchased from the EU and ‘rest of the world’. These businesses sourced large volumes of goods on a daily or weekly basis, or had technical specifications for their goods which could not be met by suppliers in Great Britain, or both. One example of this was the case of a food manufacturer which used inputs which are only grown in a limited number of countries.

A number of businesses also sold goods in Northern Ireland and the Republic of Ireland when there was a market for their products. This included food manufacturers, a livestock processor, and 2 vehicle dealerships who sold goods to customers in Northern Ireland and the Republic of Ireland, sometimes exclusively. Non VAT-registered Northern Ireland-based service providers, such as landscape gardeners, decorators and hairdressers, also sourced products from Great Britain but sold their services more locally.

The manufacturing businesses we spoke to were more likely to sell goods to the EU or the ‘rest of the world’ but this generally represented a small proportion of total goods sold. Examples here include:

case study 1 of a mid-sized food manufacturer who sold to markets in the ‘rest of the world’
a chemicals manufacturer who sold to the Middle East
a packaging manufacturer who sold to a range of EU markets
and an aerospace manufacturer who sold in the EU and ‘rest of the world’

Many online retailers benefited from sales to the ‘rest of the world’ although proportions of sales varied by the type of goods sold. Sales to the USA market were popular for vintage items or collectables, goods with Irish cachet, and goods linked with Irish culture.

3.4 Recent experiences of trading and future opportunities for development

Many businesses had experienced interruptions in their supply chain as an impact of the initial COVID-19 lockdown period which began in March 2020, with the gradual easing of lockdown measures in mid-June 2020 (such as the reopening of non-essential retail). This improved when the initial lockdown eased, although the rate at which businesses were able to return to normal trading patterns at the time of interview varied across sector and by size of business.

Shopper habits changed during the initial lockdown with many buying more goods online when retail outlets were closed. This benefited some businesses involved in the manufacture or retail of products such as concrete products and DIY type goods. Online retailers noticed an increase in their sales although this started to fall when initial lockdown restrictions eased, and shoppers returned to the high street. However, some businesses, including a bakery experienced a downturn in demand as supermarkets ordered less and shoppers were not purchasing ‘everyday impulse treats’ or celebration cakes. In the retail sector, vehicle dealerships also described losing up to 50% of sales as consumers lost confidence in buying high price items such as cars.

The closure of the hospitality sector also severely impacted businesses in food manufacturing. One business described a reduction of 80% in their orders and had to furlough staff. A decrease in demand for livestock lead to a business owner having to increase their costs on animal feed for their livestock and a fish breeder’s (wholesaler’s) sales were severely impacted by the closure of the hospitality sector.

A few businesses were able to source more goods via Northern Ireland or the Republic of Ireland where these supply chains already existed. They were able to continue unaffected or to introduce mitigating measures in order to continue trading. For retailers, this included contactless collections or deliveries to customers.

Despite this context, a number of businesses discussed potential future opportunities for developing trade across different markets. These opportunities were mainly described by small and mid-sized businesses in the manufacturing and agricultural sectors. These businesses were able to successfully continue trading despite the COVID-19 pandemic and were optimistic about their prospects of expanding their markets in the future. In agriculture, some businesses reported that they were considering developing markets in the Republic of Ireland because of its proximity, as too were vehicle dealerships in the retail and wholesale sector.

Many of the non VAT-registered online retailers were also considering expanding their sales markets further into the EU and ‘rest of the world’. They reported considering this particularly as courier costs would be paid by the customer and the expected customs forms would be simple to administer. Although the cost of advertising and operating on online platforms was higher if operating outside of Great Britain, some businesses felt they could take advantage of increasing demand for some Irish cachet products in markets like the USA and Japan. Many of them reported benefiting from increased sales at the start of the COVID-19 pandemic (March 2020), although this started to fall when initial lockdown restrictions eased (mid-June 2020), and shoppers returned to the high street. However, many of these businesses were still experiencing strong sales.

Question 5

4.  Routes and transport used when moving goods

Accepted Answer

This chapter discusses the routes and transport modes that businesses employ for moving goods. Case studies are included in Chapter 4 and these include details of supply chain routes and transport types used by these businesses.

4.1 Routes taken by goods moving out of Northern Ireland (sales)

When routing goods to England, goods often travelled via one of 3 key ports: either Belfast, Larne or Dublin. Decisions around which of these ports to use were often made by hauliers rather than businesses. The 2 main arrival ports in Great Britain were Liverpool in England or Holyhead in North Wales. Goods moved from Belfast were generally routed to Liverpool port whilst goods from Dublin were generally routed to Holyhead, as far as businesses were aware. They were then transported by road to customers’ premises. For goods moving to customers in Scotland, they typically travelled from Belfast or Larne to Cairnryan port.

Goods moving to customers in the EU often travelled via Great Britain, effectively establishing it as a ‘land bridge’. Goods travelled from either Belfast or Dublin port and arrived in Liverpool or Holyhead respectively. Businesses which used hauliers to arrange the transportation of their products were usually not able to provide specific details about the full routes taken from Great Britain to the EU. However, they assumed goods arriving in Liverpool or Holyhead were then driven to another port in Great Britain and moved by sea to an EU port in France or the Netherlands, and then moved by road to their end destination.

Businesses which sold goods to customers in the USA and the Middle East believed these goods were transported out of Great Britain from container ports such as Southampton. A couple of businesses mentioned other ports in Great Britain in the East of England such as Grimsby, which were used when considered to be more efficient in terms of time, budget or routing to the end destination.

4.2 Routes taken by goods coming into Northern Ireland (purchases)

Businesses we spoke to in the research were not always clear about the routes taken for goods they purchased from suppliers outside Northern Ireland, as suppliers organised the movement of goods on their behalf. Businesses with a clear idea of routing into Northern Ireland tended to be those with complex supply chains moving goods on a frequent basis. However, others assumed that the routes taken for goods coming into Northern Ireland were the same as the routes taken for goods moving out.

4.3 Transport modes and use of hauliers

Sea transport was more commonly used by small and mid-sized businesses as they were more likely to be moving large volumes of goods frequently and it was more cost effective to move goods this way. Air transport was more commonly used by a handful of sole traders and micro businesses or any business moving small volumes or valuable goods.

A key question for businesses to consider addressed how to transport the goods they sold to customers and whether to use an intermediary or haulier.

Many VAT-registered businesses across several sectors (including manufacturing, wholesale, agricultural and retail) used hauliers regularly as these businesses generally moved larger volumes of goods on a more frequent basis. Small and mid-sized businesses used hauliers and intermediaries where their supply chains were more complex.

The majority of businesses using hauliers had long established relationships with locally based hauliers in Northern Ireland and used them for most goods movements to Great Britain, EU or ‘rest of the world’. Some businesses had annual contracts with hauliers whilst others booked their services ad-hoc. Hauliers were perceived to have greater expertise and up-to-date knowledge of the most efficient transport modes and routes for goods movements. Hauliers provided businesses with many benefits, including expertise, quality of service, availability and reliability, which saved businesses time and money and meant they did not have to employ additional staff to perform these functions.

Businesses believed that hauliers made decisions about which ports to use based on several factors including the cost and availability of bookings at each port, the timings of ferry sailings at each port and the delivery deadlines for their goods. For example, some businesses were aware that Dublin port offered more frequent sailings than Belfast and offered overnight sailings, whereas Belfast did not.

Freight forwarders and customs agents also reduced the administration burden for businesses who were moving goods to or from the ‘rest of the world’. These intermediaries handled any specialist paperwork such as bills of landing, product health certificates for controlled or live goods, and in some cases had access to systems such as HMRC’s Intrastat.

A small number of VAT-registered businesses and a number of non VAT-registered businesses did not use hauliers. Where businesses made decisions about transport modes and routes themselves, they were influenced by several factors including:

the volume and value of goods being moved
the costs of transporting goods
the frequency of goods movements
specialist expertise required to ensure safe movement
delivery deadlines for the business involved

A few businesses used their own vehicles to move goods around Northern Ireland, the Republic of Ireland or to Great Britain if hauliers were perceived as too expensive.

A number of non VAT-registered businesses, as well as sole traders and micro business’ supply chains were simpler. They rarely needed to use hauliers as their goods were small volume or weight and more easily handled by fast parcel operators.

Question 6

5.  Four case study examples of Northern Ireland-based businesses trading with Great Britain

Accepted Answer

5.1 Case study 1: example of a complex supply chain in the manufacturing sector

5.1.1 Supply chain arrangements

This was a VAT-registered business and a mid-sized food manufacturer with a turnover of £10 million. It was both a buyer of goods from Great Britain and a seller of goods to Great Britain, selling primarily to the hospitality sector. It purchased inputs from around 100 to 150 suppliers based in the Republic of Ireland, Great Britain and the EU.

In terms of sales, the business sold around a third of its products to customers in Great Britain. The rest of its sales were split between the Republic of Ireland, the EU and customers in the ‘rest of the world’. The market in Great Britain was considered vital for buying and selling. Described as ‘the home market’, proximity to Great Britain was especially important when sourcing and moving goods with a limited shelf life.

During the initial lockdown, from March to mid-June 2020, caused by the COVID-19 pandemic, production decreased substantially and the business had to furlough staff. However, at the time of the interview (on 18 August 2020) the staff were mostly back at work full or part time, and production levels had recovered to 20% below normal.

5.1.2 Routes and transport used for moving goods

The business owned 2 distribution companies which distributed the majority of sales, and they also used hauliers. Looking specifically at the routes used to move goods to or from Great Britain and Northern Ireland, this depended on the location of the supplier or customer in Great Britain. If the supplier or customer was in England, goods were routed by sea either via Holyhead to Dublin or Liverpool to Belfast. If suppliers or customers were in Scotland, the route to Northern Ireland was Cairnryan to Belfast.

5.2 Case study 2: example of a simple supply chain in the wholesale and retail sector

5.2.1 Supply chain arrangements

The VAT-registered business was a mid-sized vehicle dealership. The majority of vehicles were purchased weekly from several regular suppliers in Great Britain, but some vehicles were also sourced from the Republic of Ireland and Northern Ireland.

Most of its goods were sold in Northern Ireland and the Republic of Ireland. Customers in the Republic of Ireland collected vehicles from the dealership as the business did not want to export, as it kept their paperwork simpler.

During the initial COVID-19 lockdown period (March to mid-June 2020), the business experienced a significantly lower demand for vehicles and a 50% reduction in turnover compared with 2019. The business believed customers were less confident about spending large sums of money because of the impact of the COVID-19.

The market in Great Britain was considered extremely important for sourcing goods because of the much wider range of vehicles which were cheaper than if sourced in Northern Ireland or the Republic of Ireland.

5.2.2 Routes and transport used for moving goods

The transport of some vehicles purchased from Great Britain was arranged by the supplier. However, for other vehicles, the business arranged transportation via hauliers. Looking specifically at the routes used to move goods to or from Great Britain and Northern Ireland, where the supplier was based in England, goods were routed one of 2 ways. They were either routed from Holyhead to Dublin or from Heysham to Warrenpoint (based on the port choice requested by the supplier), then by road to Northern Ireland. Or where the supplier was in Scotland, goods were routed from Cairnryan to Belfast.

5.3 Case study 3: example of a moderately complex supply chain in the agricultural sector

5.3.1 Supply chain arrangements

This was a small stock-raising agricultural business with a turnover of £500,000 to £999,000. It purchased all its stock from a regulated supplier in Great Britain which offered the quantity and quality the business required.

The business only sold to 2 markets. The majority of sales were to EU wholesalers, but the business also sold to the hospitality industry in Great Britain.

In 2020, EU sales were reduced by half as a result of the initial lockdown, from March to mid-June 2020, caused by the COVID-19 pandemic. The situation hadn’t improved by the time of fieldwork (in August 2020) as their wholesaler customers were finding it difficult to sell to restaurants.

5.3.2 Routes and transport used for moving goods

Stock purchased from Great Britain was transported by air to Northern Ireland. The business arranged transportation in conjunction with their supplier, who owned the plane used and therefore liaised with airport authorities. Sold goods were transported by air via courier.

5.4 Case study 4: example of a relatively simple supply chain for a non VAT-registered trader in the wholesale and retail sector

5.4.1 Supply chain arrangements

The business was a micro sized online trader with a turnover of £60,000 from selling gifts. It sourced all its goods from 2 or 3 suppliers in Great Britain who were cheaper than those in Northern Ireland. However, the business recognised that some of the goods originated in the EU or ‘rest of the world’, which they could tell from the packaging. The business believed that its suppliers benefitted from economies of scale that it, as a micro business, would not be able to achieve.

It sold goods directly to consumers via online platforms with approximately half of sales directly to individual customers in Great Britain and half to individual customers in the Republic of Ireland. It wanted to maintain sales in Great Britain and the Republic of Ireland as there was more control and ability to track orders and returns compared with markets farther afield.

At the start of the initial lockdown caused by the COVID-19 pandemic, from March to mid-June 2020, turnover increased as more people were buying online. However, sales had slowed down since consumers returned to the high street.

5.4.2 Routes and transport used for moving goods

The business used Royal Mail and fast parcel operators to move goods to and from Great Britain. Although they were unsure of the routes or transport modes used, they had assumed that first class delivery meant goods were moved by air and second-class post meant they were moved by sea.

When moving goods to the Republic of Ireland, the fast parcel operators collect and move goods by road.

Question 7

6.  Views on Northern Ireland Business Guidance and Trader Support Service

Accepted Answer

This chapter reports on both unprompted views on the expected impacts of the Northern Ireland Protocol and the end of the transition period, and prompted views of the Northern Ireland Business Guidance, published on 7 August 2020 ^{[footnote 1]}. The Northern Ireland Business Guidance set out that from 1 January 2021, at the end of the transition period, the Northern Ireland Protocol will take effect. There will be special provisions which apply only in Northern Ireland while the Protocol is in force. This means that businesses based in Northern Ireland that are trading with Great Britain (England, Scotland and Wales) may be required to submit different declarations and follow different processes when moving goods between Northern Ireland and Great Britain. The Northern Ireland Business Guidance also introduces the establishment of a new free service, the Trader Support Service, which will be available for businesses who move goods between Great Britain and Northern Ireland.

The research fieldwork started on 13 August 2020, shortly after the guidance was published, and it was expected that awareness of the guidance among businesses would increase throughout the fieldwork period. It is also important to note that, during the fieldwork period, there was considerable press coverage of the proposed internal rewriting of the Withdrawal Agreement by the UK Government.

Businesses were shown 3 different extracts from the Guidance and asked to comment on what each extract would mean for their business.

6.1 Unprompted views on the expected impacts of the Northern Ireland Protocol

Nearly all businesses we spoke to in August were unaware of the Northern Ireland Business Guidance published on 7 August 2020, or the Trader Support Service. Only a couple of businesses, which had consulted with business representative organisations based in Northern Ireland, were aware. However, their understanding of the information set out in the Guidance was limited. One business had already registered with the Trader Support Service.

Many businesses expected there would be some changes to their current trading practices but were unclear as to what these changes would be or the extent of them. Although the Northern Ireland Business Guidance had recently been published, they reported that at the time of the research, they had not received any concrete information about what actions they would need to take to prepare for the forthcoming changes. Many assumed they would have to complete additional paperwork or follow different processes in order to purchase goods from suppliers in Great Britain. In addition, many assumed there would be additional paperwork when selling to customers in Great Britain. Further to this, many did not expect to be able to take any firm action until they received further advice at the end of the transition period.

In terms of taking action to prepare for the changes, non VAT-registered businesses were the least likely to report having taken any action and had not yet consulted with any trade organisations, suppliers or customers. They reported that they would start preparing once they had more detailed information with which to plan.

Businesses with more complex supply chains were the most proactive in their planning for the end of the transition period, especially businesses with complex supply chains. One business in the agricultural sector and several in the manufacturing sector had consulted with business representative organisations and industry trade bodies to understand as much as they could about the extent of planning that could be done in advance. They also reported taking certain actions in order to ensure their business remained competitive. A few had held conversations with suppliers to discuss potential ways of absorbing additional costs. They had also held conversations with customers aiming to reassure them about potential plans to minimise delays to orders. These included increasing stock levels in case of delays to arrivals of goods from Great Britain and investing in customs training for staff.

6.2 Prompted Views of Northern Ireland Business Guidance

After being asked for their unprompted views and understanding of the changes, participants were then read a series of extracts from the Northern Ireland Business Guidance and asked for their views.

Extract 1

Moving goods from Northern Ireland to Great Britain should take place as it does now – there will be no additional process, paperwork, or restrictions on Northern Ireland goods moving to Great Britain, delivering unfettered access. Changes for goods moving from Great Britain to Northern Ireland will be kept to an absolute minimum with a new Trader Support Service (TSS), available to all traders at no cost, to be established to provide wraparound support, alongside guidance on the processes for food and agricultural products designed to uphold the longstanding status of the island of Ireland as a single epidemiological unit. Trade in goods between Northern Ireland and Ireland, and between Northern Ireland and EU Member States, will continue unaffected, with no change at the border, no new paperwork, and no tariffs or regulatory checks. For trade with the rest of the world, Northern Ireland will benefit from UK FTAs ensuring the benefits of those agreements are felt right across the UK.

The overall message of ‘no changes’ sounded reassuring to businesses, especially ‘no checks for goods moving from Northern Ireland to Great Britain’. However, the press coverage of the proposed internal rewriting of the Withdrawal Agreement by the UK Government introduced uncertainty and confusion about the overall message in Extract 1. Businesses who moved a significant proportion of their goods to and from Great Britain were especially concerned about the potential for delays to goods movements. Businesses were less concerned if they felt they could mitigate potential disadvantages posed by delays to the movement of goods, for example by targeting greater sourcing or sales in other markets.

For the manufacturing sector this extract offered critical information. It reassured a minority who were hopeful that there would be little to no impact for their business and confirmed their assumption that their suppliers would be responsible for completing paperwork for goods moving from Great Britain to Northern Ireland. However, others were sceptical about the feasibility of the assurances made in Extract 1. Although the text provided some comfort, they believed that the ability to follow through on these assurances was dependent on the outcome of UK government and EU discussions and no agreement had yet been reached. Food manufacturers, especially those with large numbers of suppliers, were reassured about the introduction of the TSS as they felt this would help to reduce their administration burden.

Businesses in the agricultural sector, as well as non VAT-registered businesses, were uncertain about whether the movement of goods from Great Britain to Northern Ireland would be subject to delays and were considering ways to mitigate against delays, such as sourcing goods earlier or less frequently. Businesses thought these types of actions could result in increased costs and were concerned about their ability to absorb additional costs or whether they would need to pass them on to customers.

Extract 2

The UK Government will establish a new, free service, the Trader Support Service (TSS), which will record electronic information on goods movements so that traders do not have to engage with new digital customs systems or processes. This service will deal with formalities (such as import declarations and safety and security information) on behalf of traders, providing unprecedented support for Northern Ireland business.

Businesses perceived that in theory, the TSS could provide benefits by completing paperwork on their behalf and reducing their administration burden. However, as the majority of businesses had not heard of the TSS before reading about it in the interview, they wanted to reserve judgment until they found out more detail about the service.

As most were not aware of the TSS, or the digital systems and processes involved, the extract raised questions about how these would relate to the goods they buy and sell today. Many reported that they had no experience of customs processes and ‘formalities’ referred to in the extract. It was not obvious how the TSS will work in practice, so many were reluctant to consider signing up until they knew more about its relevance for their business. For example, businesses who source goods from Great Britain wanted to have discussions with suppliers and assumed the processes mentioned in the extract would be the supplier’s responsibility.

Businesses in the manufacturing sector were reassured that there will be a service to support them and felt the existence of the TSS should mean there would be no need to hire a customs agent to complete paperwork on their behalf. The majority would consider using the TSS, and one business had already registered for it. But given the content of Extract 1, many thought it seemed only relevant to those buying goods from Great Britain.

As with other general views, there was confusion about whether suppliers in Great Britain would be responsible for completing the paperwork for the movement of goods from Great Britain to Northern Ireland. There was also confusion about the general level of involvement required of businesses and whether they may need to hire additional staff. Some businesses, whose cashflow and storage space allowed it, were considering increasing the volume of orders from their suppliers in order to minimise the frequency of paperwork that would be required each time they sourced goods from Great Britain.

Non VAT-registered businesses were concerned about the knock-on effects of any additional paperwork or processes they might have to undertake, and the potential costs involved. As they had previously had little involvement with HMRC there was some uncertainty about whether they needed to register with TSS. They were also concerned that if they did, they would be required to declare more information to HMRC in the future.

Extract 3

Initially traders will be able to register with the service and receive support and guidance on what the Protocol means for them. This will include the steps they need to take to comply with them (including getting an Economic Operators Registration and Identification (EORI) number). Traders will also be supported to understand the information they will need to collect about their goods, including their description, value and any supporting documentation required.

This extract resonated more with businesses with complex supply chains and businesses in the manufacturing sector, who were already aware of EORI numbers and had applied for them during the last round of EU Exit planning. These businesses were, therefore, confident that they had prepared sufficiently. Businesses in the manufacturing sector and those using hauliers were unsure if their hauliers would be able to complete the required information on their behalf. One manufacturer was exploring whether setting up a base in Great Britain would help to reduce delays that any additional processing may cause to goods sourced from Great Britain.

As with reactions to the TSS, there was a lack of sense of urgency about the need to apply for an EORI number. Some businesses assumed an EORI number was only relevant for agricultural or food businesses, whilst one non VAT-registered agricultural business assumed it was only relevant to businesses trading dangerous goods. Some, including most of the non VAT-registered businesses, were concerned about the application processes involved and assumed this would require a full audit by HMRC. There was therefore a reluctance to consider applying for an EORI number until it was clarified that it was required by all businesses.

Question 8

7.  Businesses’ thoughts and expectations of the future

Accepted Answer

Businesses generally fell into 2 key groups in terms of their expectations of the future.

7.1 ‘Wait and see’ group

This group were prepared to continue with their current business model and decide what, if any, actions they would need to take to ensure the viability of their business once they had experienced trading under ‘new rules’ in 2021 and were more aware of the longer-term impact of the COVID-19 pandemic on their business.

Many in this group had simpler supply chains and some businesses believed they may have options to mitigate against disruptions to goods movements. However, others, such as one non VAT-registered business with a relatively low turnover, were considering more extreme measures such as closing their business if their trade became badly affected.

A few businesses who were Northern Ireland-based service providers reported that they would consider changing their supplier base in Great Britain to Northern Ireland or the Republic of Ireland if they experienced long term delays to supplies from Great Britain. This was despite potentially higher costs of goods and lower availability and choice of goods. Another business was considering changing the routes used to transport their products to their customers. They were waiting for more information about whether their main route for transporting goods, by sea from Dublin to Holyhead, would be subject to disruption or delays before deciding what action to take.

Businesses from different sectors and sizes fell into the ‘wait and see’ group considering changes. Of the 4 case studies, 3 fell into this group, including case study 2, case study 3 and case study 4.

Case study 2 was a vehicle dealership. This business believed that most of their customers in Northern Ireland would accept delays to goods moving from Great Britain into Northern Ireland. The business was unable to revise their contracts with a number of their manufacturers. They were concerned there would be a significant reduction in consumer demand continuing into 2021 and they would need to take the long-term impact of this into account before deciding how to continue trading in 2021.

Case study 3 was an agricultural stock raiser (wholesaler). The business was unsure about changes to EU trading requirements and how this might change their current processes. They expected that they would need to learn about the new processes in due course, but reported that they were not too concerned about this.

Case study 4 was a non VAT-registered online retailer. The business was unsure if changes to their supply chain would be required. They believed they would find it difficult to source goods from suppliers in Northern Ireland matching the quality and pricing of their suppliers in Great Britain. They were also unsure about the impact of the administration burden of completing customs paperwork. They also felt they may lose online trade acquired from the initial lockdown (from March to mid-June 2020) if consumers returned to the high street in the long term.

7.2 ‘Prepared to take action’ group

This group generally consisted of businesses in the manufacturing sector with complex supply chains. A few manufacturing businesses were setting up a base in Great Britain to produce goods there and to avoid any delays to their EU sales. These businesses had cash reserves with which to build a base in Great Britain and were willing to bear the burden of cost increases if required.

Businesses with a higher proportion of sales to the EU also reported that they were prepared to increase their EU supplier base to replace suppliers in Great Britain and were planning to have conversations with their EU suppliers about this.

Other businesses with significant resources were also looking into potential opportunities to build trade with new markets. In this group was Case study 1, a food manufacturer. This business was prepared to accept and absorb cost increases in order to maintain their customer base in Great Britain as they sold a significant proportion of their products to customers there. They were also going to increase the size of their orders from their suppliers in Great Britain so that, if there were delays to deliveries, they did not suffer from stock shortages. They were also considering purchasing a greater proportion of their inputs from the Republic of Ireland suppliers.

In summary, although the businesses involved in this research had taken varying degrees of action to prepare for the end of the transition period, they all expected, and were keen to receive, further information on the steps they would be required to take in order to continue trading.

Question 9

8.  Appendix

Accepted Answer

8.1 Detailed information about the quotas achieved

A total of 40 depth interviews were achieved. This included 25 interviews with VAT-registered businesses and 15 with non VAT-registered businesses. The detailed quotas achieved for these interviews are shown in the following tables.

Table 1: Quotas set and interviews achieved by business size categories

Business size categories	Quota set	Number of interviews achieved
Self employed	No minimum	9
Micro	Minimum 10 interviews	13
Small	Minimum 10 interviews	10
Mid-size	Minimum 10 interviews	8

Table 2: Quotas set and interviews achieved by sector categories

Sector categories	Quota set	Number of interviews achieved
Manufacturing	4 interviews	12
Agricultural	4 interviews	5
Retail	4 interviews	10
Construction	4 interviews	2
Other sectors (including human health and social work; arts and entertainment; other service activities; information and communication; professional, scientific, technical; arts and entertainment)	Spread of interviews	11

Table 3: Quotas set and interviews achieved by trader type categories

Trader type categories	Quota set	Number of interviews achieved
Sole Trader	Spread of interviews	18
Partnership	Spread of interviews	2
Limited company	Spread of interviews	11
Incorporated company	Spread of interviews	9

Table 4: Quotas set and interviews achieved by turnover categories

Turnover categories	Quota set	Number of interviews achieved
Less than £50,000	Spread of interviews	13
£50,000 - £99,999	Spread of interviews	4
£100,000 - £149,999	Spread of interviews	0
£150,000 - £199,000	Spread of interviews	2
£200,000 - £499,999	Spread of interviews	2
£500,000 - £999,999	Spread of interviews	2
£1m - £4.9m	Spread of interviews	5
£5m - £9.9m	Spread of interviews	2
More than £10m	Spread of interviews	10

Table 5: Quotas set and interviews achieved by value of goods bought and sold from Great Britain categories

Value of goods bought and sold from Great Britain categories	Quota set	Number of interviews achieved
Less than £500,000	Spread of interviews	25
£500,000 - £999,999	Spread of interviews	3
£1m - £9.9m	Spread of interviews	12

Table 6: Quotas set and interviews achieved by use of intermediaries categories

Use of intermediaries categories	Quota set	Number of interviews achieved
Used intermediaries	Spread of interviews	30
Didn’t use intermediaries	Spread of interviews	10

The guidance has subsequently been updated and the previous guidance archived. The latest guidance on moving good into, out of, or through Northern Ireland is published on GOV.UK. ↩ ↩² ↩³
A screening survey of non VAT-registered businesses in Northern Ireland: Quantitative research to identify the incidence of those trading goods with Great Britain (report completed November 2020) ↩

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