VAT question - 50 & 100kW installs

[SolarRoofSols]

Any help would be appreciated!

If a person wanted to purchase a 50 or 100KW system, installed on land that they owned and connected to the supply in their house (all DNO issues aside) then can we charge 5% VAT?

There is no commercial use on the land and electricity usage onsite is low so they want to enter into an export contract to sell back to the grid.

Has anyone come across this before?

I've looked at HMRC who say 'You can only get these lower rates if the energy saving materials are actually installed, and the work is done on your home. You'll be charged the lower rate on the installation work itself as well as the materials.' Which seems to suggest that 5% VAT is acceptable.

I just want to avoid HMRC knocking on our door!

 

[TedM]

If the property is just a residential home and nothing else then there should be no issue with 5% VAT. That's covered by section 2.16 of VAT Notice 708/6. See below.

An installation anywhere within the 'cutilege' of the property is OK. If it is a large property then you might want to get legal advice as to exactly what the extent of the cutilege is. A pony paddock, for example, may be considered outside the curtilege in some circumstances.

They are possibly going to have to pay income tax on the FiTs income though as the tax exemption is definitely limited to systems of 50kW and below and where there is no intention to generate much more than the property needs.

[h=2]2.16 What is residential accommodation?[/h]The installation of energy-saving materials is only reduced-rated if they are for use in the following types of residential accommodation:

• houses, blocks of flats or other dwellings;
• armed forces residential accommodation;
• children’s homes;
• homes providing care for the elderly, disabled people, or people who suffer or have suffered from drug or alcohol dependency or mental disorder;
• hospices;
• institutions that are the sole or main residence of at least 90% of their residents;
• monasteries, nunneries and similar religious communities;
• residential accommodation for students or pupils;
• self catering holiday accommodation;
• caravans used as a place of permanent habitation (such as a park home or static caravans sited on a permanent residential caravan park).
• houseboats that are designed or adapted for permanent habitation and have no means of self propulsion, or other boats which are used as a person's sole or main residence, such as canal boats and Dutch barges, on which the boat owner pays Council Tax or domestic rates.

The reduced rate does not apply to the installation of energy-saving materials in hospitals, prisons or similar institutions, hotels or inns or similar establishments.

 

[SolarRoofSols]

Thanks Ted - i was hoping you'd be about today :smile5::smile5:

 

[puddy]

My wife who was a tax inspector agrees that the advice given by Ted is spot on.

 

[Earthstore]

This is just a thought...
As this customer will probably have to pay tax on the income would it not be worth setting this up as a stand alone business, VAT would be charged at 20% but could be reclaimed, the cost of the system could be offset as a tax loss, therefore making the whole investment more profitable.....

 

[SolarRoofSols]

That's the other option we have posed as nearly 90% of the generation will be exported.

Thanks for your help as always folks!

 

[puddy]

MRS states the following

you cannot setup a business in order to make a loss

You wont be able to claim vat unless turnover is greater than the vat threshold

see your accountant

 

[Earthstore]

Over the term it will make a profit, a long term investment.

Not wishing to disagree with Mrs Puddy or maybe the rules have changed but the VAT threshold used to be a figure that if you went over you had to go VAT registered, you did not have to deregister if you were below that limit, however as said maybe the rules have changed.

I agree though, see an accountant.

 

[puddy]

the cost of the system could be offset as a tax loss, .....

This is what will get you in trouble

 

[Earthstore]

There may be legal ways to do this, however as we both agreed best to see a good account.

 

[njcuk]

On this, can someone tell me if a 50-100kW install on a commercial property still needs an EPC to obtain the FIT? Thanks

 

[SolarRoofSols]

Yes it will

 

[njcuk]

Thought so, but not 100% and didn't have time to call the bodies running it. Much better and quicker advice here. Cheers

 

[SolarRoofSols]

An installation anywhere within the 'cutilege' of the property is OK. If it is a large property then you might want to get legal advice as to exactly what the extent of the cutilege is. A pony paddock, for example, may be considered outside the curtilege in some circumstances.

Hi Ted

I just wanted to clarify that I understand you correctly. 5% VAT is applicable if the installation is within the curtliage of the property?

Do you know if the tax free element of the FIT would be effected in the same way - trawling through the Ofgem guidance but can't see anything in there. The client is getting his own advice re income tax on the fit earnings.

 

[TedM]

Yes, the 5% VAT can only apply if the install is within the curtilage. But the question can still remain as to exactly where the curtilage boundary is. The normal garden area of a house (mown grass, cultivated veg/flower beds, kids swings, etc) is usually taken as the curtilage but, as I said, a pony paddock could be seen as outside. But it is not always black and white with some properties.

The HMRC guidance on tax is here: BIM40520 - Specific receipts: domestic microgeneration: Income Tax exemption for domestic microgeneration Any system over 50kW will definitely not be eligible for the tax exemption, as that is the limit on the definition of 'microgeneration'.

 

[SolarRoofSols]

A million thanks Ted - you've helped no end!