As readers will be aware, UK businesses are obliged to apply a reverse charge on wholesale supplies of gas and electricity. The detail is explained in Revenue & Customs Brief 23/14. In August, HMRC issued new guidance which clarifies and corrects the original brief.
The main adjustment relates to Power Purchasing Agreements. Formerly, HMRC indicated that all such agreements were wholesale agreements and subject to the reverse charge. The new guidance indicates that this may not always be the case if all of the following conditions apply:
- the power is sold by a generator that is exempted from holding a generating license
- the generator’s generation capacity by asset is 100 MW or less
- the generated volume is not allocated to the generator’s production account with Elexon (or its equivalent in Northern Ireland)
Businesses must make it clear that they are to account for VAT and the new guidance contains a form of wording for use on invoices.
In circumstances where, in the light of the reissued guidance, it becomes clear that the reverse charge has been incorrectly applied, businesses may either agree with the other party to apply the correct treatment from a date after 15 August 2014, or issue credit notes and re-invoice.
To read Revenue and Customs Brief 28/14 click here.