VAT: reverse charge for renewable energy certificates
Published 13 June 2019
© Crown copyright 2019
This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gov.uk.
Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.
This publication is available at https://www.gov.uk/government/publications/vat-reverse-charge-for-renewable-energy-certificates/vat-reverse-charge-for-renewable-energy-certificates
Who is likely to be affected
Businesses registered or liable to be registered for VAT that buy or sell gas or electricity certificates (also known as ‘renewable energy certificates’).
General description of the measure
The measure will introduce a reverse charge for supplies of renewable energy certificates. These certificates are issued to gas and electricity generators when they produce energy from renewable means. 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) and International Renewable Energy Certificates (I-RECS).
These certificates can also be bought and sold as a commodity attracting others into the market which creates an opportunity for fraud. A reverse charge means that the customer is liable to account for the VAT rather than the supplier. This removes the opportunity for the VAT to be stolen.
Policy objective
This is an anti-fraud measure which removes the opportunity for fraudsters to charge VAT and then go missing before paying it over to the Exchequer in Missing Trader Intra-Community (MTIC) VAT fraud.
Background to the measure
There has been no consultation on this measure. The government has needed to act quickly in response to a serious and credible threat to the VAT system.
Detailed proposal
Operative date
The operative date is 14 June 2019.
Current law
Section 1(2) of the VAT Act 1994 (VATA) makes the supplier liable for any VAT on 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.
Proposed revisions
A statutory instrument (SI) subject to the negative resolution procedure has been made under section 55A VATA to make taxable persons receiving supplies of renewable energy certificates liable to account for the VAT due on those supplies. The SI was laid on 13 June 2019 and comes into effect on 14 June 2019.
Summary of impacts
Exchequer impact (£m)
| 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 |
|---|---|---|---|---|---|
| Nil | Nil | Nil | Nil | Nil | Nil |
Economic impact
This measure is not expected to have an Exchequer impact.
Impact on individuals, households and families
There is no impact on individuals as this measure only affects businesses. This measure is not expected to impact on family formation, stability or breakdown.
Economic impacts
It is not anticipated that there will be impacts on groups sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on less than 100 businesses through the introduction of a reverse charge. One-off costs for affected businesses will include familiarisation with the change and modifying their IT systems and invoices in order to account for the reverse charge. The one-off implementation costs and ongoing administrative burdens are estimated to be negligible. There is not expected to be any impact on civil society organisations.
Operational impact (£m) (HMRC or other)
This measure will not increase operational costs.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and Evaluation
The approach to monitoring this legislation is by HMRC monitoring the application of this reverse charge, communication with affected taxpayer groups and also continuing to monitor whether fraud may spread to other goods or services and what further measures may be appropriate.
Further advice
If you have any questions about this change, please contact Paul Grimwood on email: paul.grimwood@hmrc.gov.uk.
Declaration
Jesse Norman MP, Financial Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.