The UK Government
today introduced legislation to remove VAT from supplies of
emissions allowances (also known as carbon credits) traded within
the UK, in order to prevent the risk of VAT fraud, Financial
Secretary to the Treasury, Stephen Timms announced today.
The new law, which takes effect from midnight tonight, follows
evidence that commodity trading in emissions allowances is being
used by fraudsters to steal VAT revenues from the UK, and that the
UK may become a major target for this activity in the coming
months. The change will have no effect on legitimate trading but
will prevent fraudsters from charging and collecting VAT which
they have no intention of paying to HMRC.
Similar measures have been taken by the Governments of France and
the Netherlands to prevent this form of fraud. The UK Government
has sought a derogation from EU law to cover this short-term
action pending agreement with EU partners on an EU-wide solution.
Notes to Editors
1. From midnight, supplies of emissions allowances in the UK will
be subject to the zero-rate of VAT. A zero-rate is still a taxable
supply which means that although no VAT is charged, thereby
removing the opportunity to steal VAT, the seller can generally
reclaim VAT on any purchases that relate to those sales. This
ensures that the legitimate trade will not incur additional tax
costs from this change.
2. The threat became apparent after fraudulent trading on the
Bluenext exchange prompted the French government to remove VAT
from supplies of emissions allowances in France. The Government of
the Netherlands has also made VAT changes in respect of emissions
allowances trading.
3. The UK Government is actively engaged in discussions with the
European Commission on establishing an EU-wide solution to this
threat. However, UK monitoring indicates that there now exists a
substantiated and increasing risk of the UK becoming a major
target for the fraudsters during the next few months. This risk
assessment is informed by HMRC’s experience in recent years of VAT
Missing Trader Intra-Community (MTIC) fraud in mobile telephones
and computer chips. We have seen how quickly frauds of this kind
can escalate and how effective decisive action can be in tackling
them.
4. Legitimate business has been keen to see a swift response from
the Government, to ensure that the integrity of the EU Emissions
Trading Scheme is not undermined by fraudulent trading.
5. Because trading in emissions allowances is predominately
between businesses which can reclaim VAT on purchases, this
measure has a negligible cost but effectively removes the
opportunity to perpetrate fraud. So legitimate trade is protected,
and fraudsters are the only ones to lose from the Government’s action.
6. MTIC fraud arises where (to make EU trade easier) VAT
standard-rated goods or services are effectively traded VAT free
between EU Member States (because the VAT is due in the country in
which the customer belongs, meaning that the VAT can be accounted
for and simultaneously reclaimed by the customer). The customer
then has the opportunity to charge VAT on its onward domestic
supply and disappear without accounting for the VAT due.
7. The existence of a strong secondary cross-border market in
emissions allowances generates very high volume, value and speed
of trade. This, combined with the fact that EU emissions
allowances only go to final consumption once a year provides
fraudsters with multiple opportunities to steal VAT following
cross-border acquisitions.
8. HMRC continues to work with legitimate businesses and
financial institutions to identify and tackle those involved in
any criminal or fraudulent action within the UK.
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Correspondence and Enquiry Unit on
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to public.enquiries@hm-treasury.gov.uk
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