Wind turbines - tax treatment

by **Superaquarama** on Thu Jan 13, 2011 1:03 pm

As an accountant in a rural area, I have one or two clients considering wind turbines or photo-voltaic panels. These can give a good return on capital, as the surplus power is fed back to the grid and you get about 41p per unit.

However, does anyone know the tax position ? My assumption is that if you can claim capital allowances on the cost, plus any loan interest paid, you will presumably be taxed on the income, subject to some sort of private usage adjustment.

Can anyone confirm that this thinking is correct ?

Thanks.

by **pawncob** on Fri Jan 14, 2011 6:19 pm

Unless you're the CEGB, how is power generation a business?
This is a personal arrangement outside the scope of the tax system.

by **Superaquarama** on Sun Jan 16, 2011 1:39 pm

Thanks, Pawncob, good point and maybe I'm looking further into this than neccesssary, although I'm not entirely sure I agree. Business or not, it's still income and will surely attract the Revenue's interest ?

I would have thought that, if the income were tax-free, the turbine companies would be shouting it from the rooftops. As it is, the clients who've asked them about tax just get "you'll have to ask your accountant about that". Well, maybe the sales guys have just not bothered to find out but, if I were selling turbines, I'd be damn sure I had the answer to that inevitable question, partcicuarly if it were favourable !

by **pawncob** on Sun Jan 16, 2011 9:25 pm

http://www.spiritsolar.co.uk/solar-photovoltaic-feed-in-tariffs.php?source=searchtariffsing2&gclid=CISYsK3Hv6YCFQJO4QodagKVHw

by **Superaquarama** on Wed Jan 19, 2011 11:22 pm

Many thanks indeed, Pawncob - so you were spot-on !!

by **LeeWT** on Fri Jan 21, 2011 11:51 pm

S,

The closest thing I could find was the 2007 BN64 although I think the terminology has strictly moved on since:

http://www.hmrc.gov.uk/budget2007/bn64.htm

Also VAT advice in the form of:

http://www.hmrc.gov.uk/manuals/vatscmanual/vatsc05220.htm which is more up to date - note that the smaller Export Tariff is, potentially, taxable.

Regards,

Lee

by **LeeWT** on Fri Jan 21, 2011 11:55 pm

Sorry, when I say 'taxable' I mean 'a taxable' supply in a VAT context. Not subject to Income Tax.

!

Lee

by **Superaquarama** on Sat Jan 22, 2011 12:19 am

Thanks a bunch, Lee - just when I thought it was sorted !! :mrgreen:

So it seems the supply is only tax free to householders who are not trading and thus implies, without actually saying so, that businesses (which would presumably include my farmers) would be taxed on the income.

The link you gave includes a contact, so I'll get in touch and report back here.

by **LeeWT** on Sat Jan 22, 2011 12:39 am

S,

I think P was assuming it was a domestic arrangement, whereby the income/gains would indeed be tax-free.

But if a farmer or other landowner were in a position to give over a substantial piece of land for the purposes of generating electricity and thereby income, then I have no doubt that it would be a taxable activity, both in terms of Income Tax and VAT, as it must surely be an activity undertaken with a view to making a profit?

And actually, there are apparently a number of businesses that are prepared to install PV arrays, etc., for free, provided you assign your future income rights over to them. They are of course taking on a significant risk, that the tariffs will remain so favourable for up to 25 years...

Lee

by **Superaquarama** on Tue Feb 08, 2011 7:35 pm

Belated thanks, Lee. I got a reply from HMRC but in the midst of the January turmoil forgot to post it as I'd said, so here it is:

Anthony

The aim behind the microgeneration exemption is to prevent individuals (such as those who otherwise have only employment income) from becoming subject to tax – and therefore within the self assessment system - on trading income arising on the sale of excess power to the national grid. This is the reason that the exemption is restricted to householders.

Since businesses are by definition already taxed on their trading income, they will pay tax on any microgeneration income in the same way as they pay tax on their other income. There is no option whereby they can opt to be householders. The rules with regard to CAs and other expenditure on microgeneration installation and maintenance are unaffected.

Hope this answer is useful.

Craig Mason
Policy Advisor
HMRC
Charity Assets and Residence
Room G55
100 Parliament Street
London
SW1A 2BQ