The government today said that it was considering the implications of a European Court of Justice judgement that could mean domestic PV installations are exempt from VAT.
The judgement last week on a case in Austria has received an uncertain response in the UK, with some experts claiming it could cost the government millions of pounds and undermine the future subsidy of solar energy, while others say it will have no impact at all.
The Court of Justice ruling found that the operation of solar equipment to sell back to an energy network counts as economic activity, meaning the owner could claim back the VAT cost of his initial system purchase.
The verdict arrives in the midst of a continuing feud between the UK government and the EU in which the latter is trying to force the UK to raise its reduced VAT rate on solar equipment from 5 to 20%.
A spokesman for the Micropower Council said: “It is difficult to ascertain the impact this legal case will have on the UK but it should be noted that the case in Austria concerns net metering whereas in the UK householders receive feed-in-tariffs, so the implications will be different. Having said this, it could pose some challenging questions for HM Revenue & Customs.”
But Glyn Edwards, senior VAT consultant at tax firm CCH, said the ruling could mean owners claiming up to £150 million in VAT back from the government, undermining government funding for solar energy.
He also said that there could be considerable administration costs for the UK government if thousands of people applied for VAT registrations at the same time.
He said: "This development will not be welcome in Whitehall. It seems that the government will need to completely rethink its strategy on how it funds household renewables.”
A spokesman for HM Revenue & Customs today told Solar Power Portal: "The UK is carefully considering this Judgment in light of its arrangements in this area."
The Austrian case revolved around Thomas Fuchs, who installed a PV system in 2005 and sells the electricity generated to Ökostrom Solarpartner.
Fuchs, from the Linz area of Austria, applied to his local tax office to have the initial VAT costs of the system installation reimbursed.
His request was refused on the basis that the amount of electricity he sells is less than his household requires each month and that he is therefore not engaged in “economic activity”.
He then appealed to the Linz District Independent Finance Tribunal, which sought advice from the European Court of Justice on the matter.
In its verdict, the court concluded that the operation of a PV installation does amount to “economic activity” if it is used for obtaining income on a regular basis.
It defined “income” as meaning “remuneration received as consideration for the activity carried out” and said the question of whether or not this was for a profit was “irrelevant”.