HM Revenue and Customs (HMRC) has implemented a reverse charge system in an attempt to combat VAT fraud in the renewable energy sector.
The measure is intended to prevent fraud taking place in the buying and selling of renewable energy certificates, which creates an opportunity for fraudsters to charge VAT and go missing before paying it to the Exchequer. This missing trader intra-community (MTIC) fraud is described by HMRC as “a highly sophisticated and well organised criminal attack on the VAT system”.
The reverse charge came into operation on 14 June 2019 and affects businesses registered or liable to be registered for VAT that buy or sell renewable energy certificates. The measure means that customers must be able account for VAT rather than suppliers, making the customer liable, removing opportunities for VAT to be stolen.
There has been no consultation on the measure, which was passed without notice to avoid alerting potential fraudsters of the changes. HMRC said: “The government has needed to act quickly in response to a serious and credible threat to the VAT system.”
The measure is not expected to have any effects on exchequers, individuals, households and families. Its impact on businesses is also expected to be negligible, with the only administrative changes being changes to IT systems and invoices as well as the associated implementation costs.
The UK government has had to act against MTIC fraud in a number of industries, including a reverse charge for emissions allowances in November 2010 and another charge for gas and electricity in July 2014.
HMRC plans to monitor the application and effectiveness of this reverse charge, communicating with affected taxpayer groups to determine whether MTIC fraud may spread to other goods or services.
An HMRC spokesperson said: “We have acted swiftly to introduce a reverse charge which will counter an imminent threat to abuse of renewable energy certificates.
“By taking this action, the government has protected taxpayers from potentially being victims to missing trader fraud and will ensure tax revenue stays in the hands of our vital public services.”