Revenue & Customs Brief 35/10 gives guidance on reverse charge accounting
HMRC has issued Revenue & Customs Brief 35/10 to share the draft legislation and provide guidance on how the reverse charge for emissions allowances that was announced in Budget Note 49 on 24 March 2010 will operate.
The reverse charge will apply to businesses buying or selling emissions allowances in the UK with effect from 1 November 2010. It will replace the zero rate for emissions allowances that was introduced on 31 July 2009 as an interim measure to halt rapidly-escalating MTIC fraud in that area.
With effect from 1 November 2010 (subject to Parliamentary process) the reverse charge accounting mechanism will apply to:
- a transfer of an allowance, as defined in Article 3 of Directive 2003/87/EC (concerning the EU emissions trading scheme)
- a transfer of an emission reduction unit which can be used by an operator for compliance with the scheme established by the Directive
- a transfer of a certified emission reduction which can be used by an operator for compliance with the scheme established by the Directive.
The reverse charge will not apply to supplies of options for emissions allowances which are not covered by the EU legislation permitting the reverse charge.
Details of how to account for the reverse charge and special invoicing requirements are included in the Revenue & Customs Brief. It also refers to the following draft legislation that will be required to bring the relevant changes into effect:
· The Value Added Tax (Section 55A) (Specified Goods and Excepted Supplies) Order, which specifies the supplies to which the reverse charge applies.
· The Value Added Tax (Amendment) Regulations, which amend Regulations 38A, 55C(6) and 58(2)(g) of the VAT Regulations to reflect the fact that section 55A may now apply to supplies of services as well as goods.
· The Value Added Tax (Emissions Allowances) Order, which removes the temporary zero rate.