Financing community energy projects will no longer attract generous government tax breaks.
Financial Secretary to The Treasury David Gauke has announced they will be withdrawn as qualifying projects for a range of investment tax breaks from November 30.
From then, communities or entrepreneurs cannot ask for funding through a Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS}, or Social Investment Tax Relief (SITR).
The reason for the decision was explained as misuse of tax reliefs offered by the schemes.
“New legislation is on the way to stop community energy groups from raising money for subsidised renewable energy sources through these schemes,” he said.
Government policy U-Turn
“This should not come as a surprise as we announced in the summer budget that community energy venture capital schemes were under scrutiny to make sure they provided value for money for taxpayers and were not misusing tax breaks.”
The government has already cut subsidies for solar and biomass energy projects.
Philip Wolfe, Chairman of Community Energy England argues the policy reverses will mean pulling the plug on many planned renewable energy projects.
“This will have a terrible effect on investment, damaging confidence in the sector and ending plans for many communities expecting to benefit from these projects,” he said.
“This announcement came without any consultation or opportunity for interested parties to make representation to the government.”
Misuse of tax breaks claim
Gauke did not explain how community energy projects were misusing the tax breaks.
SEIS, EIS and SITR offer similar tax breaks to investors.
Under SEIS, investors taking an equity stake in a company managing a community energy project could receive 50% relief on income tax paid in the year up to the level of their investment, which could be as high as £100,000.
They also received tax free growth on their shares and no capital gains tax on disposing of the shares after three years in the scheme.
The announcement came as part of the third reading in Parliament of the Finance Bill 2015 going through the House following Chancellor George Osborne’s Summer Budget.