Fits and 'rent a roof' companies
The Federation, and many of our members have been approached by companies or intermediaries offering to rent roof space (assets) from housing associations in exchange for free or discounted energy (via installation of photo-voltaics).
There are a number of risks and long-term benefits to associations investing in FiTs themselves or via a third party and the Federation would advise members to carefully evaluate any proposals such as 'renting roof space and free installation of PV' before signing up to any long-term agreements. These include:
1. The potential long-term investment that could be made if associations were to invest in renewables via FiTs themselves (subject to availability of capital - see Federation project below for more information)
2. FiTs pay back over a period of 20-25 years, providing a long-term revenue stream to the owner of the renewable for this time period. This revenue stream will initially pay back the capital cost of the equipment, however in the long-run it may provide an additional income stream (depending on borrowing costs etc) which could be invested in other parts of the business (such as other retrofit measures, which would enable a whole-house approach).
3. Any company who 'rents a roof' should then be liable for maintenance to the equipment. This must be taken into consideration for the housing association in undertaking their own maintenance.
4. Any renewable installed will provide some degree of free electricity for the tenant, if this is offered at a 'discount' the intermediary will be taking some of this as profit for themselves.
For more information please contact Olivia Powis 0207 067 1083 or read the Trowers & Hamlins document "Green" retrofit – something for (almost) nothing?
FITs and Tax
The Federation has sought tax advice on the treatment of tax in regard to feed-in tariffs. We are still awaiting clarification on this issue, but guidance from Treasury states that:
1. Income Tax
"The tax treatment of tariffs received will be in accordance with normal tax rules. However, additionally, section 782A of the Income Tax (Trading and Other Income) Act 2005 provides an exemption from income tax for an individual's income from the sale of electricity generated by a microgeneration system where:
(a) the system is installed at or near premises occupied by the individual, wholly or mainly, as a separate private dwelling, and
(b) the individual intends that the amount of electricity generated by the micro-generation system will not significantly exceed the amount of electricity consumed in those premises.
As a housing association is not an individual the exemption will not apply and the feed in tariffs will be taxable under normal rules.
2. Corporation Tax
If FiT income is liable for corporation tax, housing associations should evaluate the most appropriate part of their business (charitable/non-charitable) and use a non-charitable SPV for FiT installations. The Federation is awaiting further guidance on this issue.
3. VAT
(i) If the HA charges the tenant for the electricity generated, VAT would be charged at a reduced rate.
(ii) If the HA is selling back to the grid VAT would be charged at a standard rate
(iii) If the HA uses the electricity for their own purposes (e.g. in a communal area in a block of flats) there would be no supply and no VAT payable.
(iv) if the HA 'gifts' the electricity to tenants, ie (makes no charge), this would be non-business use of the electricity. This might implications on the extent to which the HA was able to recover VAT on related expenditure.
We are following up on this. For more information, please contact Olivia Powis on 020 7067 1084
FITs and State aid: DECC says grants are not compatible
DECC notified the Feed In Tariffs scheme to the European Commission who ruled that it was state aid and that 'investment aid' in conjunction with the scheme would therefore not be compatible.
DECC are still to publish their guidance on FITs following the Commission ruling but conversations suggest that their view is that grants and FITs are not compatible.
We are following up on this. For more information, please contact Corine Meier on 020 7067 1034