Revenue and Customs Brief 4 (2019)- domestic reverse charge for renewable energy certificates
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Published 13 June 2019
Domestic reverse charge for businesses trading in renewable energy certificates
The government has introduced legislation, in the form of a
statutory instrument, to introduce a reverse charge accounting
mechanism (‘domestic reverse charge’) for supplies of gas
and
electricity certificates in the UK (‘renewable energy
certificates’).
This is in response to a serious and credible threat of missing trader
intra-community fraud in those supplies.
The purpose of this brief is to provide guidance on how the domestic
reverse charge will operate. It should be read with Notice
735: VAT domestic reverse charge on specified goods and services.
1. Who needs to read this
You should read this if you’re a business registered or liable
to be
registered for VAT that buys or sells renewable energy certificates.
2. Background
A domestic reverse charge means the UK customer receiving supplies
of renewable energy certificates must account for the VAT due on these
supplies on their VAT return rather than the UK supplier.
The customer can deduct the VAT due on the supplies as input tax,
meaning no net tax is payable to HMRC, subject to the normal rules for
reclaiming VAT. This removes the opportunity for fraudsters to steal
the VAT due to HMRC and follows similar measures introduced in response
to criminal threats for:
- mobile telephones
- computer chips
- emissions allowances
- gas and electricity
- telecommunication services
3. Timing and scope of implementation
3.1 Timing
The reverse charge will take effect from 14 June 2019 and will apply
to the buying and selling of renewable energy certificates in the UK on
and from that date.
HMRC understands that the new reverse charge may cause some
difficulties and will apply a light touch in dealing with any errors
made in the first 6 months of the new legislation, as long as
businesses are trying to comply with the new legislation and have acted
in good faith.
Any errors need be corrected as soon as possible, as the longer
under declared or overcharged sums remain outstanding the more
difficult it may be to correct or recover them.
HMRC officers may assess for errors during the light touch period.
Penalties will only be considered if businesses are deliberately taking
advantage of the measure by not accounting for it correctly.
3.2 Scope
3.2 .1 What is covered by reverse charge
The domestic reverse charge will apply to all supplies of renewable
energy certificates between VAT-registered businesses established in
the UK.
3.2 .2 What are ‘renewable energy
certificates’
They are certificates that are issued to gas and electricity
generators when they produce energy from renewable means. These
certificates can also be bought and sold as a commodity attracting
others into the market which creates an opportunity for fraud.
They are commonly called Guarantees of Origin (GoOs) and are also known as:
- Renewable Energy Certificates (RECS)
- Renewable Obligation Certificates (ROCS)
- Renewable Energy Guarantee of Origin (REGO)
- International Renewable Energy Certificates (I-RECS)
Although this list is not exhaustive.
3.3 Exclusions
Whilst VAT legislation allows for certain supplies to be
‘excepted’
from a reverse charge, there are no ‘excepted supplies’
specified in
this reverse charge.
4. The domestic reverse charge mechanism
4.1 How does the domestic reverse charge
mechanism work
Under the domestic reverse charge, it is the responsibility of the
customer, rather than the supplier, to account to HMRC for VAT on
supplies of renewable energy certificates. It will only apply to
business to business transactions in the UK where those businesses are
registered or liable to be registered for VAT. This is the same as the
domestic reverse charge for:
- mobile phone
- computer chip
- emissions allowances
- gas and electricity
- telecommunications
4.2 The de minimis rule and Reverse
Charge Sales List
As is the case with the emissions allowances, gas and electricity
and telecommunications domestic reverse charges:
- there is no ‘de minimis’ rule excluding supplies
under £5,000 so
the domestic reverse charge applies to all supplies of renewable energy
certificates
- businesses are not required to complete a Reverse Charge Sales
List
4.3 Completing the VAT return
4.3 .1 Suppliers
Suppliers of goods or services under the domestic reverse charge
must not enter in box 1 of the VAT return any output tax on sales to
which the domestic reverse charge applies. Suppliers must enter the
value of such sales in box 6.
4.3 .2 Customers
Customers must fill in box 1 of the VAT return the output tax on
purchases to which the domestic reverse charge applies. They must not
enter the value of such purchases in box 6. They must reclaim the input
tax on their domestic reverse charge purchases in box 4 of the VAT
return and include the value of the purchases in box 7, in the normal
way.
4.4 Invoicing
When making a supply to which the domestic reverse charge applies,
suppliers must:
- show all the information normally required to be shown on a VAT
invoice
- annotate the invoice to make clear that the domestic reverse
charge applies and that the customer is required to account for the VAT
The amount of VAT due under the domestic reverse charge should be
clearly stated on the invoice but should not be included in the amount
shown as total VAT charged.
If you use software to produce your invoices, and your system cannot
show the amount of VAT to be accounted for under the reverse charge,
then 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 services.
Under EU law and the VAT Regulations 1995, invoices for domestic
reverse charge supplies (when the customer is liable for the VAT) must
include the reference ‘reverse charge’. The following
examples fulfill
the legal requirement:
- Reverse charge: VAT Act 1994 Section 55A applies
- Reverse charge: S55A VATA 94
applies
- Reverse charge: Customer to pay the VAT to HMRC
4.5 Place of supply
The place of supply for services is where a business is located.
Renewable energy certificates bought or sold by a UK-based business
that is registered or liable to be registered for VAT will be subject
to UK VAT. This is the case even if those certificates are being traded
outside the UK.
4.6 Penalties
HMRC understands that this immediate change may be challenging and
the difficulties businesses may have in implementing the domestic
reverse charge. It will apply a light touch in dealing with errors that
occur in the first six months after introduction.
HMRC officers may assess for errors during the light touch period,
but penalties will only be considered if businesses are deliberately
taking advantage of the measure by not accounting for it correctly.
4.7 Further guidance on the application
of the domestic reverse charge
Detailed guidance on the other domestic reverse charges can be found
in Notice
735: VAT domestic reverse charge on specified goods and services.
5. Current law
Section 1(2) of the VAT Act 1994 (VATA)
makes the supplier liable for any VAT in supplies of goods or services.
Section 55A of VATA provides that
the recipient of a supply must account for the VAT due on supplies of a
kind specified in an order made by the Treasury.
EU legislation in Article 199a1(f) of Directive 2006/112/EC allows
member states to provide for a reverse charge for supplies of gas and
electricity certificates.
A statutory instrument (2019/1015) brings the relevant changes into
effect.
For more information to contact the VAT
helpline.
About the Author
© Crown Copyright 2019.
A licence is needed to reproduce this article and has been republished
for educational / informational purposes only. Article reproduced by
permission of HM Revenue & Customs.
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Article Published/Sorted/Amended on Scopulus 2019-06-14 00:00:05 in Tax Articles
