CW Energy LLP

VAT on the import and sale of natural gas and on the place of supply of electricity, heating and cooling.

In February, we advised of a new EU Directive, Council Directive 2009/162/EU, which was issued in December 2009.  This heralded some important and welcome changes to the treatment of imports and supplies of natural gas and of electricity.  The Emergency Budget of 22 June 2010 provided further information in Budget Notice, BN40.

At present, gas supplied via the natural gas distribution system is treated as supplied where either a wholesale customer is established or the natural gas is consumed.  UK customers registered for VAT are required to account for VAT under a reverse-charge on the supplies of natural gas received from suppliers established abroad.  Other gas imports, though, can require the actual payment of VAT on entry into the UK, something that can bring significant cash-flow implications.

Importantly, from 1 January 2011, the rules, which also cover electricity, are to be amended so that, inter, alia:

  • there will be no need to account for VAT on the import of gas via pipeline from outside the EU (EG from the UK, Dutch or Norwegian sectors of the North Sea) as these imports will now be zero-rated.  This will effectively, therefore, include wet gas and gas requiring processing onshore.
  • this relief from VAT at importation is extended to all imported natural gas (including liquefied natural gas imported by tanker).
  • the scope for the rules on supplies (as opposed to imports) is also extended to cover supplies in all categories of natural gas pipeline, not just pipelines accepted as part of the natural gas distribution system – but only where the pipelines are located in the EU or linked to such pipelines.

The rules will also be extended to apply to heat and cooling.

Legislation will be included the Finance Bill to be introduced after the summer recess amending VAT Act 1994, Section 9A (5) – to change the definition of “relevant goods” for the purposes of applying the reverse-charge and paragraph 3of Schedule 4.  There will be other consequent changes in due course by secondary legislation.


As observed previously, these changes will be much welcomed by industry as they will remove the uncertainty of whether VAT should or should not be paid when importing gas into the UK.  They will also avoid the potentially costly cash-flow implications of the current rules and the need to provide HMRC with financial guarantees.

Anyone wanting a copy of the new Directive or wishing to discuss anything arising from this should contact Peter Landon or their usual CWE contact.