The Treasury has suggested that cases of individuals or companies using community energy schemes as vehicles for tax avoidance has triggered this week’s decision to cut relief mechanisms.
On Monday amendments were placed into the new Finance Bill between its second and third reading, making community energy projects exempt from receiving EIS, SEIS and SITR tax relief as of 30 November.
The cuts were resoundingly criticised by the industry, which labelled them “extremely damaging”, however financial secretary to the Treasury David Gauke indicated that apparent “misuse” of the scheme was the motive behind the decision.
And in a statement issued to Solar Power Portal, a Treasury spokesman said that the government had become aware of “significantly increased interest” in the use of participating in community energy schemes for “low-risk tax planning purposes”.
HMT said that preventing such abuse was the reasoning behind the changes, which were made in order to “ensure they remain effective at delivering investment to high-risk businesses that need funding to develop and grow, while protecting taxpayers from potential abuse”.
“The government is committed to supporting the investment and innovation needed to achieve a cost-effective transition to a low-carbon economy, but we also want to do this in a way that is fair and provides value for money to hardworking taxpayers,” the spokesman added.
The Treasury has yet to reply to more specific questions on the matter, including whether or not the department had conducted any internal impact assessment prior to making the decision.
The stance is unlikely to appease community energy campaigners who rely almost solely on share issues to investors in order to raise the required funds. With just a month until eligibility for tax relief is removed projects that have failed to raise sufficient funds face an uncertain future. Mongoose Energy managing director Jan-Willem Bode told SPP earlier this week that as much as half of his company’s pipeline faced uncertainty as a direct result of this law change.
Meanwhile Edinburgh Community Solar Co-op has urged new investors to sign up prior to the closure of tax relief, stating that “time is certainly off the essence”.
Depending on an individual investor’s circumstances the Edinburgh scheme proposes returns of between five and seven per cent, however these will fall given cuts to the tax relief measures and the programme is some distance off its target, so far raising just £124,000 of its £1.4 million aim.