Domestic reverse charge ― trading in carbon emissions

Produced by Tolley

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Domestic reverse charge ― trading in carbon emissions
  • What are carbon credits / emissions allowances?
  • What are carbon offset services?
  • VAT treatment of cross-border supplies
  • Reverse charge
  • How do you account for the reverse charge?
  • Practical points

Domestic reverse charge ― trading in carbon emissions

This guidance note provides an overview of the reverse charge provisions relating to trading in carbon emissions. This note should be read in conjunction with the Domestic reverse charge ― overview and Domestic reverse charge ― accounting requirements guidance notes.

What are carbon credits / emissions allowances?

According to HMRC guidance, only those compliance market credits which can be used to meet obligations under the EU Emissions Trading Scheme (EUETS) were subject to the UK domestic reverse charge mechanism. These comprised of EU Allowances, as defined in Directive 2003/87/EC (as amended). Some Certified Emission Reductions (CERs) and some Emission Reduction Units (ERUs), as defined in the Directive, were also were subject to the UK domestic reverse charge.

The UK is no longer a member of the EU and is no longer part of the above schemes and, as a result, from 1 May 2021, the CERs and ERUs are no longer within the scope of the UK domestic reverse charge.

At the beginning of 2021, a new UK Emissions Trading Scheme (UKETS) was introduced. This broadly follows the EUETS and an amendment was made to the scope of the UK domestic reverse charge so that it applies to UK allowances from 1 May 2021.

What are carbon offset services?

An increasing number of businesses are providing car

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