New guidance issued by HMRC on the tax treatment of Renewable Heat Incentive receipts will be welcomed by the farming community according to David Missen, Head of the Agriculture Sector at MHA.
The guidance confirms that RHI payments on a domestic scheme are tax exempt except where part of the heat is for non-domestic purposes (such as a home office or workshop used in a business). Where this is the case, the RHI receipt should be deducted from the cost of heating before apportioning any to a business use claim. If heat is supplied to a third party from a domestic installation (e.g. to a neighbour for a fee) the relevant proportion of RHI will be taxable as miscellaneous income.
Where the RHI is claimed on a non-domestic scheme the RHI payments are taxed as income. Where the heat is provided to tenants the treatment will depend on whether the heat is separately charged. If so the receipts will be “miscellaneous income” and a deduction can be claimed for any cost incurred in generating the heat. If the heating is simply included in the rent, the RHI will be deducted from the cost of providing that heating, with any surplus being taxed as property income.
The guidance is silent on exactly how the RHI is treated where the heat is used within the claimant’s business, but one would assume that it would defray the heating costs in the first instance with any surplus being charged as miscellaneous income.
Many farmers benefit from RHI payments for heating the non-domestic side of their business and David Missen commented: “This announcement from HMRC is welcome. Many of these schemes supply more than one property and this is a common sense solution to what had been an area of tax uncertainty”.
By way of reminder, where RHI is being claimed, the equipment is not eligible for the enhanced capital allowances on energy-saving plant.
Luke Morris, MHA Energy Sector Head, agreed with David commenting: “Clarification on this point of detail is welcome. More interesting, however, is the general tenor of policy coming out of this area, from a government unencumbered by coalition. We are seeing a general move to cut renewable subsidy given a £1.5bn overspend of the clean energy budget. We fully expect forthcoming tax guidance to take this in to account too, to balance the books”.
If you would like to discuss this issue in more detail or you would like to speak with a member of our team, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with your local representative.