Energy firms to get a £900m tax slap from Osborne

Companies exploiting a loophole which allows them to claim almost a billion quid in tax relief are about to get short shrift from the Chancellor.

by Michael Northcott
Last Updated: 19 Aug 2013

It hasn’t been entirely clear why the cost of 'leccy and heating is going up, considering that, in some cases, the wholesale price of fossil fuels is actually falling. But now the big firms may actually have a reason to hike the prices up yet further, for consumers and businesses. The Treasury today closed down a £900m loophole that allows energy firms to claim tax relief against equipment installation costs going back decades.

So what have they been up to, exactly? Essentially, there is tax relief available for the cost of providing new or improved installations to commercial premises. But in many cases, energy companies have been claiming this tax relief when the firm they are doing the work for has already met the cost of the installation. It means they are adding no additional economic value, and yet are walking away, collectively, with almost a billion pounds in tax savings. The Treasury reckons they have claimed £50m in this way since January this year.

Osborne says: ‘It is completely unacceptable that utility companies think they can claim for huge amounts of money that business customers have already covered the cost for.’ His ploy is obviously aimed at raising more money for the government’s coffers, but the net result is likely to sting consumers, rather than the Big Five energy companies. You can bet your bottom dollar (actually, don’t, you might need it) that they’ll slap the additional cost on your utilities bill rather than taking up the slack themselves.

The chancellor added: ‘By legislating today, we will prevent utility companies from making these claims, ensuring fairness for British taxpayers.’ Apparently, the new law takes near-immediate effect, as it will be appended to an existing finance bill. That means the Treasury will stop accepting new claims and will have the power to challenge the claims that have already been presented.

This may be a victory for the taxpayer, but when utility-bill-payers are actually the same people, it may not be as ‘fair’ as he thinks. It shows how difficult it is to close tax loopholes in practice, compared with just making speeches about tax fairness. In this case - which you'd think is a pretty simple one - the very people who are supposed to benefit from closing the loophole (the taxpayer) will end up paying for it at the other end of the 'loop'...

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