Summary and implications

The Government has with immediate effect changed to zero rate the supply of emissions allowances (also known as "carbon credits") within the UK. This change has been implemented by an amendment to the VAT Act 1994.

This change has been enforced to reduce the opportunity for VAT fraud, which may occur if a UK company purchasing emissions allowances from overseas sells them to another UK company, charges VAT but then fails to then account for it to HMRC. The UK Government believes that it is in the public interest that steps be taken now to prevent substantial potential losses to the Exchequer.

You should note that:

  • this is an interim measure and will remain in force until an EU-wide solution is implemented
  • the zero rate will apply to any transaction in EU emissions allowances and transferable units issued pursuant to the Kyoto Protocol – other cross-border transactions are not affected
  • any amount purporting to be VAT on tax invoices dated from 31 July 2009 will not be recoverable as input tax.

Any further details, if required

If you trade in allowances and are concerned about the consequences of incorrectly accounting for VAT during the changeover, you should contact the National Advice Service on 0845 010 9000. Please click here for the Revenue & Customs guidance.