Policy paper

Revenue and Customs Brief 28 (2014): domestic reverse charge for businesses wholesale trading in gas and electricity

Published 15 August 2014

This policy paper was withdrawn on 9 October 2017

The information is no longer current so the page has been withdrawn.

Purpose of this brief

The reverse charge for domestic gas and electricity took effect from 1 July 2014. This brief supplements and clarifies the guidance published in Revenue and Customs Brief 23 (2014).

Who needs to read this

Those who have read Revenue and Customs Brief 23 (2014) 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)

Revenue and Customs Brief 23 (2014) 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 contract
• you are a generator that is exempted from holding a generating licence
• your generation capacity by asset is 100MW or less
• 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 Levy Exemption Certificate, Renewable Obligation Certificates 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

The ‘Exclusions’ section of Revenue and Customs Brief 23 (2014) 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.

Invoicing

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 charge.

Corrections

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, HM Revenue and Customs 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.

Issued 15 August 2014