Wind farms can be a lucrative source of income, but in order to make the most of this income it is important to protect the tax position by claiming capital allowances. A high percentage of wind turbine construction expenditure qualifies for capital allowances. However, due to their specialist construction, the full extent of the allowances available may not be fully identified by non specialist advisors.
Key areas to be aware of that Lovell Consulting can assist with:
Segregation of Costs
It is unlikely that all capital costs relating to the construction of wind farms will qualify for capital allowances. This is because additional structures like substations, offices, new roads are also constructed. It is therefore essential that the costs are carefully segregated and apportioned between the relevant capital allowances pools. Frequently the costs are not broken down to the level required, therefore an expert with surveying skills is required to break down the costs to their component parts. The benefit of segregating the costs is in increasing the expenditure that qualifies and increasing the rate at which the allowances are realised.
Costs in connection with installing turbines, for example, turbine bases or widening a road can be particularly complicated to claim, as they could be considered to be property improvements or too remote to be seen as incidental. Recent case law such as B & E Security Systems v HMRC Commissioners  and HMRC’s capital allowances manual provide guidance regarding incidental costs. However, specialist capital allowances knowledge is then required to apply this to a windfarm.
A well presented capital allowances report is needed to claim the majority of the expenditure as either plant, or incidental to the installation or acquisition of the plant.
Long Life Assets
Wind turbines can be categorised as general plant i.e. have a write down allowance of 18% per annum. However, if an item of plant has an anticipated economic life of more than 25 years it is considered to be a long life asset and has a write down allowance of 8%. It is therefore important that a specialist reviews all relevant information to ensure they have proof that the turbines are not long life assets.
Enhanced Capital Allowances
Wind turbines, unfortunately, do not qualify for enhanced capital allowances as they are energy generating rather than energy saving. However, certain component parts of the turbine, for example the motors, may qualify and we have the knowledge and experience to identify these items. These greatly increase the rate at which tax relief is given at 100% wda compared to 18% wda.
A grant may have been received for part of the installation works. It is important to understand how this grant should be treated for capital allowances. Early capital allowances advice whilst drafting grant contracts will be helpful to ensure this is agreed with the grant provider.
There may be a division between the land owner and the wind farm operator. Before this contract is finalised it is important to get capital allowances advice to determine who will be eligible to claim the allowances.
It is recommended to use a specialist capital allowances firm to extract all the available allowances. Lovell Consulting has significant experience in windfarms and understands the legislation and case law in order to identify the more unusual claimable items. We also provide capital allowances contract wording for grants and leases.
Lovell Consulting can add significant value where information is missing or difficult to obtain. As a dual qualified team in tax and surveying, we are able to break down costs and value qualifying items.