Solar Panel - taxable or non-taxable

Posted by GWK1985 PM | on Thu, 07/04/2011 - 09:58 2000 5 comments | report

I have a client who is looking to invest in some solar panneling on their farm out buildings which they will then sell onto the grid. These building are non-residential so far as I am aware and I need to know what the tax position concerning them is. If they generate the electricity, use some and then sell the rest back to the grid under the FIT scheme then I understand that that is tax free income. However, if the client is to sell the electricity on without using any of it, can that still be sold tax free or would it be a trade?

Update:

Thanks for the opinions guys, this is clearing up a bit more for me now.

I have done some more information delving into the client and it turns out that the land that he is looking to put the solar panels are on land which seperate to the land on which he lives. I get the impression that this seperation of land and home would make it a commercial production of electricity rather than private, making it taxable income. I think it would probably be best to advise him to run it as a trade.

Comments

Opinions vary

pawncob | Thu, 07/04/2011 - 10:15 | Permalink

http://www.hmrc.gov.uk/pbr2009/individuals.htm#g
http://www.ownergy.co.uk/tariffs/tax/

The spirit

Paul Scholes | Thu, 07/04/2011 - 12:23 | Permalink

It's typical of new innovations that such exact detail only comes out once it's been in place for a time (and enogh people ask these sorts of questions). However, my own understanding is that in the spirit of the scheme householders (ie in private dwellings) who tack this on to their existing hosehold supply will be tax free whereas any business or person doing it purely for commercial purposes will be taxed.

Yes it's still grey because you need to define "household" but in this case I'd err on the side of it being taxable.

Capital Allowances

Swedish Chef | Thu, 07/04/2011 - 14:09 | Permalink

And depending on whether you are referring to Solar Thermal panels, or Solar Photovoltaic panels, you will either get 100% capital allowances under the ECA scheme, or not, respectively (this does not preclude a claim under normal AIA rules), assuming that we are talking about a pukka business here of course.

is it a domestic supply?

bajburnett | Thu, 07/04/2011 - 14:11 | Permalink

Although not conclusive, a good indication would be to find out which electricity supply the panels are connected to. If there is a single supply to the farmhouse and outbuildings, ie a single MPAN then de facto the farmer would be using some of the electricity generated domestically before it goes to the grid and so should fall within the tax exemption. If there is a separate supply to the farm outbuildings, ie they have their own MPAN, then it looks like a commercial rather than domestic situation from the guidance I have seen.

Is the actual legislation giving the exemption published yet?

AWeb got a mention

thisistibi | Wed, 13/07/2011 - 15:58 | Permalink

I've just noticed that Chris Mattos gave Swedish Chef some coverage for the above comment in the July 2011 edition of Tax Advisor magazine.... good to see AWeb being publicised!