VAT reverse charge for gas and electricity
The government announced as part of the Budget 2014 measures that it would legislate for the introduction of a VAT reverse charge accounting mechanism on the wholesale supplies of gas and electricity. The announcement was made in order to prevent missing trader intra community fraud.
A newRevenue & Customs Brief (23/14) has been published announcing the implementation date and also publishes the associated draft legislation and guidance on how the domestic reverse charge for wholesale trading in gas and electricity will operate. The domestic reverse charge will apply to all affected supplies with effect from 1 July 2014.
The domestic reverse charge will not apply to supplies for consumption, i.e. of gas and electricity made under supply licence or metered arrangements to domestic and business premises.
The domestic reverse charge will apply to all wholesale supplies of gas and electricity between counterparties established in the UK. This typically means wholesale supplies between UK counterparties under trading contracts (for example European Federation of Energy Traders contracts, Grid Trade Master Agreements and National Balancing Point contracts) and over the counter or spot contracts of:
- gas where it is gas supplied through a natural gas system situated within the territory of a member state or any network connected to such a system, or
HMRC has confirmed that they will apply a light touch in dealing with errors that occur in the first six months after introduction where there is no tax loss to the exchequer. It is estimated that up to 1,000 businesses will be affected by this change.