VAT included in Feed-in Tariff?

[proVoltic.coop]

Hello,

I have a question regarding the FiT and I hope someone is able to help me:

Are the stated FiT rates net or gross?
Setting up a PV installation of 50 kWp and being a VAT registered entitiy, would we be receiving 31.4p plus VAT which will then be passed on to inland revenue? Or do the 31.4 p already inlcude VAT and we would only be receiving 31.4p minus 20%?

Thank you for your help!
proVoltic.coop

 

[TedM]

For a VAT registered business the supplier will add VAT to the export payment but not the main rate: VATSC05220 - Further guidance for identifying supply: Supplies of goods for consideration: Feed in Tariffs

 

[proVoltic.coop]

Thank you very much for the information and the link!

So, regardless that the generation tariff is outside the scope of VAT and the export tariff is within the scope of VAT, the rate that the DECC is stating in table of generation tariffs, is the rate that can be calculated with and VAT might be added or not, correct?!

Thank you!

 

[TedM]

The 3p export rate would have VAT added to it (which you then hand over to HMRC as part of your VAT return). Not sure if this is at 5% or 20% but your electricity supplier will tell you.

None of the other rates will have VAT added.

 

[proVoltic.coop]

Magic, thanks!!

 

[SRE]

The 3p export rate would have VAT added to it (which you then hand over to HMRC as part of your VAT return). Not sure if this is at 5% or 20% but your electricity supplier will tell you.

None of the other rates will have VAT added.

Hi Tedm, thanks for the link - I'm still a bit confused though. I understand the levelisation issue because some suppliers will take a disproportionate amount of Fit from customers and the levilisation just makes it fair for each supplier, but it doesn't say that if you supply your surplus to the grid that you won't pay vat on it - surely you will because your providing a service to the utilities? So for example if you use 50% then 50% of the Fit wouldn't be taxable because it's for your own use but the other 50% plus the generation tariff would be vatable as a service supplied to the utilities for re-sale.

I'm working on a quote for a farm at the minute and getting more confused by the day about the tax/vat implications

 

[proVoltic.coop]

Hm, as far as I understand, even if you only use 50% of the generated electricity yourself and feed in 50%, the only rate that is subject to VAT is the 3p, isn't it? The basic generation tariff will stay outside the scope of VAT..?

 

[TedM]

SRE, for a VAT registered business both the input and output VAT amounts can effectively be ignored when calculating the return for the investment.

On the income side - the VAT will be added by the electricity company to the 3p they pay the system owner for export. It doesn't matter whether this is 50% deemed or actually metered. So if you are paid for 1000 kWh of export (in a quarter) then the supplier will pay £30.00 plus 5% (I think) VAT = total £31.50. The VAT registered owner then has to pay the £1.50 back to HMRC as part of their VAT return - outputs - and keeps the £30 for themselves. The net effect of VAT on income is zero, just a bit of positive cash flow.

So for the purposes of advising a client then this VAT "income" can be ignored - as there isn't any. It's important that the business let the supplier know that they are VAT registered though when they first sign up for a FiT contract.

Similarly for VAT on the capital amount of the installation. This is also effectively ignored for a VAT registered business as they will be claiming this back from HMRC as part of their inputs in their VAT return. So if you charge £20,000 plus 5% VAT = total £21,000 then, for a VAT registered business, they are only going to pay £20,000 so your return calculation should use this lower figure.

Having to pay tax on the income is a quite separate issue. Tax free for domestic systems (if the conditions are met) but for anyone else, especially a VAT registered business, then all the income from FiTs - both the main tariff and the export - will be counted as income. If the business ends up making a profit, in a financial year, then they will have to pay corporation tax on that amount.