HMRC have announced an immediate change in the VAT treatment of Renewable Energy Certificates (RECs). These changes take effect from 14 June 2019 and any UK VAT registered business which buys or sells RECs is likely to be affected. It has not been widely trialled and there is no formal transition period. The change extends to certificates traded outside the UK. The measure has been introduced to combat increasing levels of VAT fraud in the sector.

How will this work?

The change will shift the obligation to account for VAT on the sale of RECs from the seller to the purchaser. This is achieved via a “Domestic Reverse Charge”. This is an increasingly common anti-fraud measure which HMRC use in a number of areas, including the energy sector. When a REC is sold between UK VAT registered businesses, the seller will no longer charge VAT. Instead, the purchaser will be required to self-account for VAT by way of output tax and input tax entries on the relevant VAT return.

What do I need to do?

The measure will require immediate changes in invoicing and VAT accounting systems, which may not be straightforward to implement, particularly for purchasers. HMRC recognise this and will police the change with a “light touch” for its first six months – this approach will include the administration of any penalties for errors.

If you would like more information on the change or to discuss how it might affect your business, please contact me here, or speak to your normal Johnston Carmichael contact.

Read more about the newly issued guidance here.