Solar Panels bought by LLP or Ltd Co, installed on member's home

Solar Panels bought by LLP or Ltd Co, installed...

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I have a client who is considering installing solar panels on his home roof. 

His home is used as the office of two businesses, one of which is an LLP and one is a Ltd Company.

As with the OP in the following question:

https://www.accountingweb.co.uk/anyanswers/solar-panels

my client wants to explore options for financing the panels, and is keen for one of the businesses to own them. The following seem to be the options:

  1. LLP buys panels.
  2. LLP claims input VAT in full
  3. LLP can't claim AIA (panels are the photo-voltaic sort, so ECA not in point)
  4. LLP is subject to income tax rather than CT. Does this mean that Feed in Tariff income is not taxable even though it is a business? Various provider websites, including http://www.ownergy.co.uk/info/tax/ seems to suggest so. BUT, one of the members is a Ltd Company (not the one in situation 2 below). How would this work?
  5. LLP "charges" household for its use of the generated electricity through a reduction in the "use of home" charge currently made.

OR:

  1. Ltd Co buys panels
  2. Ltd Co claims input VAT in full on the installation
  3. Ltd Co claims AIA
  4. Ltd Co has to pay CT on FIT income
  5. Ltd Co charges household for its use of the generated electricity through a reduction in the rent charged to it by the client.

Has anyone done this since the OP in the above question raised it last year. Are there any pitfalls to be watched for? And, out of interest for other clients, if the client was a sole trader, would it be the best of all worlds since the business would get AIA and the FIT would be tax exempt because the sole trade was subject to income tax, and FIT are exempt from income tax.

Any thoughts very much appreciated - thanks in advance!

Replies (5)

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By nautical
11th Aug 2011 20:11

some comments

In Option 1 I would have though the panels etc fall within the normal AIA regime, albeit not ECA.  Also have a look at BIM40520.  Perhaps the transparent nature of a LLP for tax purposes means that the individual partners will not pay income tax whereas the corporate partners will.

Agree with Option 2 detail

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By Connie1
12th Aug 2011 08:07

bajburnett, thanks for your response. The issue with AIA in the LLP is that the LLP has a corporate member and cannot, in normal circumstances, claim AIA. Is there some form of exception for solar panels that you're aware of?

 

It strikes me that the best of all worlds - almost too good to be true in fact - is if a sole trader or partnership with no corporate partners buys panels - that way you get the VAT back, full AIA on the net price plus tax free FIT income. 

 

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By nautical
12th Aug 2011 15:53

you are right on AIA

I should say I am involved in solar panels rather than as an accountant, but see having looked more carefully that you are right about corporate members of a LLP and AIA.  No solar panel exemption I am aware of.  The corporate partner will have an AIA.  Any scope for that to own the panels but to be operated by the LLP?

I agree your latter point that it looks too good to be true.  But that does seem to be how the legislation and guidance is worded!

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By michaeltrigg
08th Sep 2011 16:01

Hi.  You are correct that an

Hi.  You are correct that an LLP with a corporate member cannot claim AIA.  With PV panels it would only be possible to claim AIA until 5 April 2012 (31 March 2012 for Ltds) as legislation regarding PV panels and capital allowances changes then.  Further, Feed in Tariff is only exempt from tax for individuals, it is fully taxable for sole traders, partnerships, LLPs and Ltds (i.e. wherever one is running a business).

It would be better for the taxpayer to install PV system in private name to claim Feed in Tariff.  There would be a reduced cost for electricity bills, because you would be generating some of teh electricity that you are using and there could also be income from selling units to the electricity supplier (tax free as an individual).

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By Connie1
08th Sep 2011 18:09

Many thanks Michael

For the heads up on the changes on 31 March  / 5 April. Can you direct me towards the press release / other announcement of this change by govt / HMRC?

 

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