Following on from Budget 2014 in which the government announced its plans to introduce a reverse charge accounting mechanism (domestic reverse charge) for wholesale supplies of gas and electricity within the UK, HMRC have published the above brief. This change is in response to the threat of missing trader intra-Community fraud in those supplies.

The brief announces the implementation date and publishes the associated draft legislation and guidance on how the domestic reverse charge for wholesale trading in gas and electricity will operate. The domestic reverse charge will apply to all affected supplies with effect from 1 July 2014. This means that supplies with a tax point on or after that date will be affected by the change.

A domestic reverse charge means the customer receiving wholesale supplies of gas or electricity must account for the VAT due on these supplies on their VAT return rather than the supplier. The customer can deduct the VAT due on the supplies as input tax, meaning no net tax is payable to HMRC, subject to the normal rules for reclaiming VAT. This removes the scope for fraudsters to steal the VAT due to HMRC and follows similar measures introduced in response to criminal threats for mobile telephones, computer chips and emissions allowances.

HMRC recognises the timetable for the change may be challenging for some businesses and has announced that it will be adopting a ‘light touch’ approach with regard to penalties to assist those who are making reasonable efforts to comply but may not be able to do so in time.

More detailed information on the change is available in the Brief.