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HMRC have published Revenue & Customs Brief 35/10, to cover the draft legislation and guidance on how the reverse charge for emissions allowances, to come into effect from 1 November, will operate.
The reverse charge accounting mechanism for businesses trading in emissions allowances will apply to:
- a transfer of an allowance;
- a transfer of an emission reduction unit; and
- a transfer of a certified emission reduction.
It will not apply to supplies of options for emissions allowances which are not covered by the EU legislation permitting the reverse charge.
At the same time the temporary zero rate for emissions allowances, including options, will be withdrawn. These changes do not affect the application of the Terminal Markets Order, under which certain transactions on specified markets are zero-rated.
Under the reverse charge accounting mechanism, it is the responsibility of the customer, rather than the supplier, to account to HMRC for VAT on supplies of the specified emission allowances.
As with the mobile telephone and computer chip reverse charge, it will only apply to business to business transactions in the UK.
However, there are two key differences between these measures, which are:
- there is no de minimis rule excluding supplies under £5,000;
- it will not be necessary to complete a reverse charge sales list.
When it comes to completing the VAT returns, suppliers of goods should enter the value output tax on sales to which the reverse charge applies in box 6, not in box 1.
Customers must enter the output tax on reverse charge purchases in box 1, then reclaim the relevant input tax in box 4 and include the value of the purchases in box 7, in the normal way.
As well as the usual details, suppliers should make it clear in relevant invoices that the reverse charge applies and that the customer is required to account for the VAT.
The amount of VAT due under the reverse charge rules must be shown on the invoice but not included in the amount shown as total VAT charged.
The precise wording is not prescribed in law and discussions with business have highlighted the need to keep the annotation short, e.g. ‘customer to pay output tax of £X to HMRC’ or ‘UK customer to pay output tax of £X to HMRC’.
Provided that the amount of tax is shown elsewhere on the invoice, it would also be acceptable to state ‘VATA 1994, s 55A applies’.
Detailed guidance on the reverse charge mechanism can be found in Notice 735: VAT reverse charge for mobile phones & computer chips.
