HM Revenue and Customs Brief 28/14 - Reverse Charge for Gas and Electricity
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Issued 15 August 2014
VAT: domestic reverse charge for businesses wholesale trading
in gas and electricity - further information on Revenue &
Customs Brief 23/14
The reverse charge for domestic gas and electricity took
effect from 1 July 2014. This brief supplements and clarifies the
guidance published in RCB 23/14.
Who needs to read this
Those who have read RCB 23/14 and businesses registered or
liable to be registered for VAT that buy or sell wholesale gas and
electricity in the UK.
Power Purchase Agreements (PPAs)
RCB 23/14 indicated that PPAs are all wholesale supplies and
subject to the domestic reverse charge. However, that is not always the
case, particularly with renewable and embedded generation, and with
auctions carried out by the Non-Fossil Purchasing Agency (NFPA).
This brief clarifies that your supply of electricity is
excluded from the domestic reverse charge as a non-wholesale supply if:
- you sell your generated power under a PPA or similar
- you are a generator that is exempted from holding a
generating licence, and
- your generation capacity by asset is 100MW or less, and
- the generated volume is not allocated to your production
account with Elexon (or the generator account with the Single
Electricity Market Operator (SEMO) in Northern Ireland)
Similarly, if your generated power is sold to the NFPA, NFPA
Scotland Ltd or NFPA Services Ltd and the generated power is not
allocated to your production account with Elexon or generation account
with SEMO, that power is excluded from the domestic reverse charge. The
sale of the power by the NFPA by auction is also excluded from the
domestic reverse charge.
Any associated LEC's, ROC's and any other incidental supplies
which are covered by the PPA or similar contract will also be excluded
from the domestic reverse charge.
Incidental supplies and certain exclusions
Paragraph 4.3 of RCB 23/14 listed certain specific supplies
where the domestic reverse charge would not apply. This brief clarifies
that where these supplies are incidental to a domestic reverse charge
supply then they will also be subject to the domestic reverse charge.
Businesses that are currently unable to itemise on their sales
invoices the amount of VAT to be accounted for under the reverse charge
mechanism need to make clear on their invoices that it is the
customer's responsibility to account for the VAT. In such cases the
wording should state that VAT is to be accounted for by your customer
at the standard rate of VAT, based on the VAT exclusive selling price
for the reverse charge supply. Your customer must be able to identify
the reverse charge goods or services, and a legend such as the
following is recommended:
- Reverse Charge: Customer to account to HMRC for the reverse
charge output tax on the VAT exclusive price of items marked reverse
As a result of this further guidance some business may find
that they have applied the domestic reverse charge to supplies where
normal VAT accounting should apply.
In these cases, HMRC is content, subject to both parties
agreeing, that any reversion back to normal VAT accounting rules takes
place from a future date provided that the VAT is accounted for
properly under the domestic reverse charge.
Alternatively, businesses will need to issue credit notes for
the reverse charge invoices that have already been issued and reissue
normal VAT invoices for the affected period. Where someone has yet to
apply the domestic reverse charge but needs to do so following this
guidance they should apply it from a current date.
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Article Published/Sorted/Amended on Scopulus 2014-08-18 13:30:13 in Tax Articles