Skip to main content

Chancellor closes energy company tax loophole

Legislation puts an end to claiming back costs at the expense of the public

george osbourneA loophole that allowed energy distributors to claim back historic costs at the expense of the UK public is to be closed by the government.

Chancellor George Osborne has announced that the legislation, which comes into effect immediately, will prevent businesses claiming capital allowances for costs met by other companies, some of which go back decades.

According to the coalition, it will prevent gas and electricity distribution companies in particular from profiting at the expense of UK taxpayers.

Tough action

It comes just a month after some of the big six energy suppliers revealed that they have paid little or no corporation tax in the UK in the last year, instead claiming that their investment in energy infrastructure and new power stations has qualified them for tax breaks.

Now, in a bid to stamp out claims that could result in up to £900 million in tax lost to the Exchequer, Mr Osborne has unveiled the draft legislation, which he said will be introduced in the current Finance Bill.

“The government is committed to competitive taxes to support growth in the UK. But it is also only right that companies pay the tax they owe,” he explained.

Exploiting loopholes

The problem has only become serious recently, as utility companies did not traditionally claim capital allowances for costs that had already been covered by business customers.

However, gas and electricity distribution companies have recently changed their attitudes and made new claims for past expenditure, which could generate significant windfall tax repayments and reductions for the organisations concerned, the chancellor explained.

“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,” he added.

“By legislating today, we will prevent utility companies from making these claims, ensuring fairness for British taxpayers.”

In the meantime, HM Revenue and Customs has confirmed that it will continue to challenge claims that have already been submitted.

Learn more

Chancellor urged to raise VAT on energy bills

DECC to bear the brunt of Govt spending cuts

Business and industry call for government clarity over energy prices