.png)
.png)
A reverse charge accounting mechanism, known as a domestic reverse charge, for wholesale supplies of gas and electricity is to be introduced in the UK next month.
The charge means taxpayers receiving wholesale supplies of gas or electricity must account on their VAT returns for the tax due – which can be deducted as input tax, meaning no net tax is payable to HMRC, subject to the normal rules for reclaiming VAT.
A reverse charge accounting mechanism, known as a domestic reverse charge, for wholesale supplies of gas and electricity is to be introduced in the UK next month.
The charge means taxpayers receiving wholesale supplies of gas or electricity must account on their VAT returns for the tax due – which can be deducted as input tax, meaning no net tax is payable to HMRC, subject to the normal rules for reclaiming VAT.
The measure – intended to prevent VAT fraud – follows similar mechanisms introduced in response to criminal threats for mobile telephones, computer chips and emissions allowances.
The new domestic reverse charge will apply from 1 July. HMRC say they will adopt a light touch approach to penalties, to assist those who are making reasonable efforts to comply but may not be able to do so in time.
Subject to certain exceptions, the charge will apply to all wholesale supplies of gas and electricity between counterparties established in the UK. It will not affect supplies of gas and electricity made under supply licence or metered arrangements to domestic and business premises (supplies for consumption).
VAT-registered businesses that do not resell or trade the gas or electricity will not be affected.
Suppliers of goods under the domestic reverse charge must not enter in box 1 of the VAT return any output tax on sales to which the domestic reverse charge applies, but must enter the value of such sales in box 6.
Firms must enter in box 1 of the VAT return the output tax on purchases to which the charge applies, but must not enter the value of such purchases in box 6. They must reclaim the input tax on their domestic reverse charge purchases in box 4 of the VAT return and include the value of the purchases in box 7, in the normal way.
When making a supply to which the charge applies, suppliers must show all the information normally required for a VAT invoice and annotate the invoice to make clear the charge applies and that the taxpayer is required to account for the VAT.
Revenue & Customs Brief 23/14 contains the associated draft legislation and guidance on how the charge will operate.
