Committee publication · Correspondence · 25 February 2026

Correspondence with Minister for Devolution, Faith and Communities relating to Leveling Up Fund, and VAT rules, dated 3 and 13 February 2026.

From: Northern Ireland Affairs Committee

Summary

Correspondence between the Northern Ireland Affairs Committee Chair and the Minister for Devolution, Faith and Communities concerning VAT treatment and the Levelling Up Fund (now Local Regeneration Fund) in Northern Ireland. The Chair raised concerns about VAT delays and cost increases due to the unique dual VAT regime applying to Northern Ireland under the Protocol; the Minister confirmed guidance was provided and stated no delays have been reported, with responsibility for future Local Growth funding transferring to the Northern Ireland Executive from April 2026.

Key findings

The Levelling Up Fund Round 2 guidance required applicants to confirm unrecoverable VAT costs in their budgets
Northern Ireland operates under dual VAT rules: UK rules for services and domestic transactions, EU rules for goods, due to the Northern Ireland Protocol
Some projects experienced delays and cost increases due to VAT treatment uncertainty, particularly regarding asset ownership and VAT recoverability
The Department reported no delays or cost increases attributable to VAT treatment among Northern Ireland projects to date; projects in Omagh, Antrim, Belfast, Portrush and Derry/Londonderry completed successfully
From April 2026, the Local Growth funding (successor to Levelling Up Fund) will be managed by the Northern Ireland Executive, transferring responsibility for VAT clarity to that body

Tone

Procedural

Topics

devolutionpublic-financenorthern-irelandtax-policylocal-regeneration

Key actors

Tonia Antoniazzi MP, Miatta Fahnbulleh MP, Northern Ireland Affairs Committee, Department for Levelling Up, Housing and Communities, Northern Ireland Executive

Notable line

“VAT liabilities can differ depending on whether goods or services are involved, and ownership of land or assets”

Key Quotes

“Northern Ireland follows UK VAT rules for services and domestic transactions and EU VAT rules for goods, due to the Northern Ireland Protocol.”
— Tonia Antoniazzi MP · Explaining the complexity of VAT treatment in Northern Ireland

“Some projects have faced delays or cost increases due to uncertainty over VAT treatment and reclaimability.”
— Tonia Antoniazzi MP · Setting out the practical impact of VAT confusion on fund recipients

“My officials continue to work closely with all Local Regeneration Fund projects across Northern Ireland, to support delivery, and we have not been made aware of any delays or cost increases due to VAT treatment.”
— Miatta Fahnbulleh MP · Government's response on VAT impact to date

“With regards to the new Local Growth funding that will rollout from April 2026, it is our expectation that, subject to final agreement, the funding will be managed by the Northern Ireland Executive, who will have this responsibility.”
— Miatta Fahnbulleh MP · Clarifying future responsibility for funding and VAT guidance

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Source · parliament.uk record ↗