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VAT domestic reverse charge

Introduction of a Domestic Reverse Charge for Wholesale Supplies of Gas and Electricity

Ryan Bevan 29 August 2015 No comments

 

With effect from 1 July 2014 a domestic reverse charge for wholesale supplies of gas and electricity within the UK was introduced. The change in VAT accounting arrangements for these supplies was to counter the threat of missing trader intra-Community (MTIC) fraud.

Subject to certain exceptions, the domestic reverse charge applies 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
electricity.

The domestic reverse charge will not apply to supplies of gas and electricity made under supply licence or metered arrangements to domestic and business premises, i.e. supplies for consumption. VAT registered businesses that do not resell or trade the gas or electricity will not be affected.

Under the domestic reverse charge, it is the responsibility of the customer, not the supplier, to account for VAT on specified supplies of gas and electricity. The new rules only apply to business to business transactions in the UK where those businesses are registered or liable to be registered for VAT.

There is no de minimis rule so the domestic reverse charge applies to all supplies of gas and electricity (unless the supplies are specifically excluded). Affected businesses are not required to complete a Reverse Charge Sales List.

When invoicing for a supply subject to the domestic reverse charge, as well as showing all the information normally required for a VAT invoice, suppliers must annotate the invoice to make clear that the domestic reverse charge applies and that the customer is required to account for the VAT. The amount of VAT due under the domestic reverse charge should be clearly stated on the invoice but must not be included in the amount shown as total VAT charged. If, however, businesses are currently unable to itemise the amount of VAT to be accounted for under the reverse charge mechanismon their invoices they may include a legend along the following lines instead:

“Reverse Charge: Customer to account to HMRC for the reverse charge output tax on the VAT exclusive price of items marked reverse charge.”

HMRC will apply a light touch in dealing with errors that occur within the first six months of the introduction of the domestic reverse charge where there is no loss of tax.

For further information on which supplies are covered by the new rules, specific exclusions and how the supplies should be accounted for on the VAT return please refer to the following HMRC Revenue and Customs Briefs http://www.hmrc.gov.uk/briefs/vat/brief2314.htm and http://www.hmrc.gov.uk/briefs/vat/brief2814.htm .