Carbon credits now zero rated for VAT
Seven people have been arrested following a HMRC investigation into a suspected £38 million VAT fraud involving a network of companies trading large volumes of emissions allowances known as carbon credits.
The fraudulent companies purchased carbon credits from overseas without VAT and sold them to businesses in the UK at a VAT inclusive price. However, the VAT charged by the fraudulent companies was never paid to HMRC.
New legislation came into force on 31 July 2009 to combat this type of fraud. The change is intended as an interim solution pending an EU led solution to the problem. It also means that you should stop paying VAT on all affected purchases from 31 July 2009 as these supplies are now zero-rated.