Due to the tight timeframe for the introduction of this measure, HMRC has indicated 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.

This charge affects businesses registered or liable to be registered for VAT that buy or sell wholesale gas and electricity in the UK.

In this year’s Budget the government announced plans to introduce a reverse charge accounting mechanism (domestic reverse charge) for wholesale supplies of gas and electricity within the UK. This is in response to the threat of missing trader intra-Community (MTIC) fraud in those supplies.

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.

This 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.

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 phones, computer chips and emissions allowances.

Full details of the measure are available in Revenue & Customs Brief 23/14