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GreenWeek
ClickGreen’s review of all the week’s news, views, research and analysis with a focus on low carbon and sustainability
Volume 22: Nov 8, 2013
Exclusive: Solar PV owners set for
half-a-billion pound cash windfall
Government faces massive pay-out to homeowners after European ruling
By Stuart Qualtrough
he Government has
T con?rmed that UK
homeowners who have
installed solar panels are in line
for a huge cash windfall
following a European Court
ruling on a tax loophole.
A Treasury of?cial told
GreenWeek that the department’s
months-long review of an obscure
European Court of Justice (ECJ)
judgement has been completed
and it concedes solar panel owners
are legally entitled to claim up to
£500m of VAT repayments.
In a statement, the department
says it will allow households to
claim back the sales tax “in
relation to the purchase,
installation, and maintenance and
in respect of any incidental costs”
as the Feed-in Tariff can now be
considered as a “business activity”.
However, Chancellor George
Osborne is expected to use his
Autumn Speech next month to
outline how the HMRC will claw back
some of the money by reclaiming
VAT on the electricity generated
that is exported to the National Grid.
Treasury chiefs are desperate to
avoid opening the ?oodgates to
claims that will be an administrative
nightmare as nearly 500,000
households are eligible to voluntarily
register for VAT status to reclaim the
payments. They are hoping by
claiming the VAT back on the export
component of the Feed-in Tariff the
Solar PV households are entitled to claim back millions in VAT payments
Treasury will minimise the eventual
loss and deter many households
from tackling the red tape.
The situation was triggered by a
decision, known as the Fuchs’ ruling,
handed down by the ECJ in June
that set a legally binding precedent
across all member states. A panel of
judges stated that sales of electricity
generated from solar panels to the
national power company of Austria
constituted a business transaction
and the owner was able to register
and reclaim input VAT.
Brian Garner, Director of Tax at
Michelmores LLP, told GreenWeek
that the Government was now liable
for similar claims but had used the
time until the Autumn Statement on
December 3 to create a new tax
framework that would recover some
of the paid-out cash.
He explained: “The implication
for UK homeowners who have
installed solar PV panels is that
they are entitled to register for VAT
and claim back VAT paid on
related costs.
“This may extend to more than
just the cost of installation – for
example, are roof repairs now partly
recoverable? What does it means
for VAT registered businesses
operating from split home and work
units, such as farmhouses – should
recovery percentages now be
revised upwards? These are all
questions that will need to be
resolved in due course.”
Some commentators have
forecast that the Treasury could lose
up to £500m as a result of the
decision, especially now as
homeowners can reclaim the VAT
element of maintenance of their
rooftop panels over the 20 or 25 year
period of the Feed-in Tariff contract.
Brian Garner added: “One
possibility might be to remove the
exemption from direct tax that
householders currently enjoy under
the domestic micro-generation
exemption. This would be the
logical step as if it is argued that
the generation is a business with
recoverable VAT, the pro?ts should
be taxable. This would reduce and
possibly negate any VAT saving.
“Concerns have also been raised
about how HMRC will cope if
thousands of homeowners
simultaneously submit VAT
registration applications. The
power companies are also
concerned as it could result in
them receiving thousands of
additional invoices from small
suppliers to the National Grid.
“Not surprisingly HMRC has been
considering the implications of this
decision since its release in June. It is
too early to say de?nitely make a
claim to recover the VAT but I expect
all the details will be contained
within the Autumn Statement.”
Other analysts fear that having
only introduced their Green Deal
initiative last year, which provides
subsidiaries for green energy
installations, the decision by the
EU in this case could signi?cantly
undermine the Gvernment’s
funding on solar energy.
continued on page 7