Earlier this year the European Court ruled, in an Austrian case, that a householder who had installed solar panels on his home and supplied the electricity generated to a company was engaged in economic activity.
It is common for PV installations to generate more electricity than is required by the household and for this to be supplied to the grid for a fee. This is commonly known as the Feed in Tariff (FIT).
It is unlikely that many households will generate income from the FIT above the VAT registration threshold of £79,000 per annum but that doesn’t prevent them from registering for VAT voluntarily and claiming part of the VAT on the cost of the PV installation and any other related costs.
At the moment, the UK authority provides for energy saving materials to be installed at 5% VAT but this is being challenged in Europe and this cost could therefore rise to 20% when the opportunity to claim some of this back would become more attractive. Of course, being VAT registered will mean charging VAT on the income from the FIT but the electricity companies will be able to reclaim this and so it is a financial win for the householder.
For householders who are already VAT registered as sole traders because they have an existing business, this will be an additional economic activity to be brought into that registration. Also Flat Rate Scheme users will need to consider whether their flat rate should change, depending on the predominant business activity.
Of course, the nature of the Flat Rate Scheme could also present further VAT savings where the electricity company pays 20% VAT on the FIT payments but the VAT registered householder only has to pay over to HMRC a lower fixed rate percentage. Much of the advantage will depend on the specific contract with the PV supplier and whether ownership of the panels changes hands and so it is all the more important that the VAT implications are in the householder’s mind when considering having panels installed.
For more information on how the team at UK VAT Advice can help you recover more or pay less VAT, contact us now.
