VAT for businesses trading in emissions allowances
HMRC have set out their views on the proposed reverse charge accounting for businesses trading in emissions allowances.
The purpose of the draft legislation is to introduce a reverse charge accounting mechanism for supplies of emissions allowances from 1 November 2010. This measure will replace the interim zero rate for emissions allowances which was introduced on 31 July 2009.
The reverse charge mechanism is being introduced to combat the growing problem of Missing Trader Intra-Community (MTIC) fraud in relation to trading in emissions allowances.
With effect from 1 November 2010, subject to Parliamentary process, the reverse charge will apply to the following:
- a transfer of an allowance, as defined in Article 3 of Directive 2003/87/EC.
- a transfer of an emission reduction unit which can be used by an operator for compliance with the scheme established by the Directive.
- a transfer of a certified emission reduction which can be used by an operator for compliance with the scheme established by the Directive.
The reverse charge will not apply to supplies of options for emissions allowances which are not covered by the EU legislation permitting the reverse charge.