Solar power FIT - taxable or not?

Solar power FIT - taxable or not?

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Another member posted a query yesterday, in connection with a wind farm and the private use adjustment to make.  "Nautical" posted a reply quoting BIM40520 and the exemption this provides, but it got me thinking.

My client is a farmer who has installed solar panels on the roof of a farm building which is adjacent and near to the farmhouse.  As long as the intention isn't to generate significantly more electricity than would otherwise be used, it is a tax free source of income according to BIM40520.

BIM40510 defines the term "microgeneration" as kit capable of generating power up to 50kWe, but assuming you fulfill this requirement, and the location is ok, how do you determine how much you intend to generate? 

Furthermore, BIM40520 suggests that you look at the domestic premises useage when deciding whether you'll generate more than 20% of "normal useage", but BIM40530 refers to "own consumption" rather than specifically talking about the domestic useage.

This may be splitting hairs, but if there is only one electricity supply to the farm, and my client lives in the farmhouse, the farmhouse element of the overal electricity cost per year will be fairly nominal (ignoring the business/private split for a moment) compared to the whole electricity bill for the entire farm.  If the roof of a farm shed is covered by solar panels, the amount they generate (rather than being sold back, used etc.) is going to be massively in excess of the farmhouse consumption, so does this mean the client fails the second element of the test and is therefore taxable on all the income recieved, subject to any private use split?

The desired position would be that you look at the overall site/supply area rather than just the domestic premises being occupied, although given the size of the installation in my case, they may still generate in excess of 20% of "normal consumption".  

Any thoughts?     

Replies (5)

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Woolpit Gus
By nutwood
20th Nov 2012 12:16

I think you've misread BIM40520

 I don't know whether it makes a difference in your case but BIM40520 says 'generate an amount of electricity more than 20% in excess of their own domestic needs' ie. 120% of total domestic consumption.

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By nautical
20th Nov 2012 11:46

It is worth reading the actual legislation as well as the BIM.

If the farmer is self employed rather than running a company and owns the microgeneration equipment then to my reading of it S782a applies.

The question of what is the intended generation is very straightforward.  Depending on the kWp of the panels, the direction they are facing, shading allowance and angle of the roof then an annual production figure will pop out of a SAP calculation or a number of online calculators.

More subtle is how this relates to "the amount of electricity generated by it will not significantly exceed the amount of electricity consumed in those premises."  Is that meant to be an annual figure?  That seems reasonable to me although it will mean one is often generating more than one is using because for domestic circumstances maximum generation does not often coincide with maximum demand.  How the farmhouse is heated could be relevant.

How big is the installation you are looking at?

 

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By ianthetaxman
20th Nov 2012 13:38

@nutwood - I can see what you mean when I re-read my OP!  I think the point I was trying to make was whether it is just the domestic premises that is considered or the entire site when looking at the way you view the 120% limit - the last para of BIM40530 doesn't make the distinction.

@nautical - it sounds as though you've had some experience with this type of thing.  The installation is  pretty big as it covers the roof of a reasonably large farm building.  S.782A would work but uses the definition of "microgeneration"  as per s.4 of CCSEA 2006 and s.82 (7) and (8) of EA 2004, which basically says that microgeneration applies if the kit generates less than 50kWe, as I mentioned in the OP.

At this stage I dont know if this is breached or not - if it is I think the income is taxable and we can claim CAs on the cost.  If it is below 50kWe, then I still need to establish by how much the generation exceeds usage, and how useage is defined.

The farmhouse has gas central heating, but there are some very large items of farm machinery that are attached to the electrical supply - one of the reasons they invested over £100k on the solar panels in the first place - that use a lot of juice.  I suppose this is why I'm concerned that the domestic useage will be very small compared to the amount generated, thus making the FIT a taxable source of income?

 

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By nautical
20th Nov 2012 14:28

I am an engineer rather than an accountant (although I have done a CIMA cert) here out of interest, so consider my comments in that light.

I would be surprised if it is over 50kW as you are into 'filling a field' territory and there is a tariff boundary at that level.

In very rough terms a 10kWp array south facing with no shading on a 45 degree roof will give you 8,500kWh annual output.  A 50kWp array will give you 42,000kWh per year.  At home (large and old) I use 22,000 kWh a year, but that is with an electrically powered heat pump.  A small modern home might use only a few thousand kWh a year.

You ask how usage is defined - it isn't in the legislation or HMRC guidance.  But I did offer a rationale in my earlier post - consider the annual consumption.

With gas CH the domestic electricity bill may well be relatively small.

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By ianthetaxman
20th Nov 2012 15:09

Interesting stuff.  I need

Interesting stuff.  I need more information from the client as to the size of the installation - your summary of the useage figures and the cost involved makes me wonder if they have exceeded the 50kW limit.  Thanks for your comments. 

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