HM Treasury announced yesterday that all supplies of emissions allowances within the UK will be VAT zero rated from today. This means that whilst VAT is no longer due on UK carbon credit transactions, businesses retain the right to recover VAT they incur on their associated costs.
This is an interim measure that will remain in force pending implementation of an EU-wide solution.
Difficulties remain with cross-border carbon transactions and brokerage and related charges
Frank Sangster, head of environmental tax at KPMG, commented:
"Whilst the Treasury's move should minimise the risk of fraud in UK carbon trading, the risk of VAT fraud continues to exist in relation to transactions on non-UK exchanges such as the European Energy Exchange (EEX) in Germany and Sendeco2 in Spain. The exceptions to this are trades in the Netherlands and France, who have already acted in relation to the potential fraud.
"We recommend that participants in the market continue to exercise caution and undertake thorough Know Your Customer (KYC) procedures before transacting in overseas markets.
See full Press Release.
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