RCB/28/10 VAT—liability of non-compliance carbon credits and carbon offsetting services
Revenue & Customs Brief, Issue 28. 21 June 2010
Revenue & Customs Brief 52/07 “Place of supply of trading allowances in greenhouse gas emissions” (RCB/57/02, Division V16.3) stated that further guidance would be issued on the VAT treatment of non-compliance carbon credits. This is covered in this Brief alongside the VAT treatment of carbon offsetting services. Revenue & Customs Brief 52/07 is no longer extant, having been superseded from May 2008 by guidance published in Notice 741 “Place of Supply of Services” (Part V8) (until December 2009) and since 1 January 2010 by the new Notice 741A “Place of Supply of services” (Part V8).
This Brief covers the VAT treatment of supplies of carbon credits and services provided by carbon offset providers. For the purposes of this brief, “carbon offset providers” offer advice and/or the facility to reduce an individual's “carbon footprint”.
Carbon credits fall into two categories—
— compliance market credits, which derive from the Kyoto Protocol and the EU Emissions Trading System (“EUETS”)
— non-compliance credits, of which the most common example is the Verified Emission Reduction (VER)
The important distinction, for VAT purposes, between compliance market credits and VERs is that the former are capable of consumption of the type envisaged by the VAT system, and the latter are not. As VAT is a tax on consumption, this means that compliance market credits are subject to VAT, whilst VERs are outside the scope of