UK confirms anti-fraud reverse charge on wholesale power and gas July 2014
Following the announcement in the last UK budget, HMRC has confirmed that UK (domestic) supplies in the wholesale market of power, electricity and gas will be exempt from UK VAT at 20% from 1 July 2014.
EU combats VAT fraud
The measure is being introduced under the European Union’s Rapid Response Mechanism for VAT fraud. This enables member states to apply to the EC for the right to introduce the VAT reverse charge on goods or services it suspects are vulnerable to VAT fraud. In particular, missing trader fraud whereby criminal / organised gangs claim to sell goods as intra-community supplies (so zero VAT) but actually sell the goods domestically and then charge and pocket the VAT.
There have been a number of fraud reports in the wholesale energy markets of Europe, especially in Germany. Initially, the UK’s HMRC reported that it did not believe this had spread to the UK. However, following questioning in the market, it chose to err on the side of caution and apply for the reverse charge to be introduced.
Under the Rapid Response Mechanism, the UK may apply the reverse charge for 12 months.
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