UK HMRC acts on VAT fraud in renewable energy sector

HMRC has implemented anti-VAT fraud measures with immediate effect on the renewable energy sector. HMRC has said “The government has needed to act quickly in response to a serious and credible threat to the VAT system”.

The introduction from 14 June of zero-rating VAT (‘reverse charge’) on sales of renewable energy certificates is aiming to curb extensive misdeclarations of cross-border EU trading to evade VAT payments. 

The certificates are issued to gas and electricity generators when they produce energy from renewable means. They have attracted commodity dealers, creating a fraud opportunity where sellers claim they have been sold to buyers in other EU states at nil VAT. The fraud is committed by the seller actually selling the certificate with 20% UK VAT, but then not remitting the VAT to HMRC.

Under EU VAT law, member states are permitted to take emergency action on fraud by suspending the cash settlement of VAT by the use of the reverse charge.

HMRC may have had inside information on recent fraud in the sector as there has been no industry consultation on this – which is usual practise. “Missing Trader” fraud is estimated to cost the EU €50billion per annum, and has been rampant in the past in the UK in the computer chip, mobile phone and precious metals. HMRC also had to act in the wholesale electricity trading markets in 2014.