The renewable heat incentive (RHI) scheme has been running since November 2011 for commercial installations and pays the owners of renewable heating technologies (RHT) for producing heat used for qualifying purposes. Examples of RHTs include biomass boilers, ground and water source heat pumps and solar thermal installations.
The scheme for domestic installations is expected to launch next year. It will be made available to homeowners who have installed a renewable heat technology since 15 July 2009 and meets the scheme eligibility criteria.
The RHI offers quarterly payments for 20 years, index linked, for the heat generated. Combined with the fuel cost savings this makes investment in RHTs very attractive. However, the payback period of the investment can be shortened if tax relief can be maximised.
Assuming the heat generated by the system significantly exceeds the amount of heat consumed in the domestic household, the RHI will be taxable income. As a result, after adjusting for private use, VAT can be reclaimed on the installation costs and tax relief can be claimed on interest on any borrowing taken out to make the investment. However, most significantly, tax relief can be claimed on the cost of the installation under the capital allowance regime.
From 1 January 2013 to 31 December 2014 the annual investment allowance (AIA) provides for immediate tax relief on expenditure of up to £250k on plant and machinery purchased in an accounting year. If you are considering investing in RHTs you should take advice on the AIA early on to ensure your AIA is maximised. This is particularly important if you have made other purchases in the year or if your accounting year straddles the dates mentioned above. Making sure you maximise the tax relief can shorten the payback period on these investments significantly.
Sam Kirkham 01823 286096