Osborne declares £900m tax war on utilities

The chancellor George Osborne has declared a £900m tax war on the utilities industry today stating some companies are "double claiming" and that he would be "changing the law" to stop the practice.

In a statement released by Osborne on behalf of The Treasury, he promised to introduce legislation to “confirm tax rules prevent businesses claiming capital allowances for costs met by other businesses”.

Osborne said the measures would have immediate effect and would be specifically targeting gas and electricity distribution companies from making new claims for historic costs “dating back decades that have already been paid by their business customers.”

He added: “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.

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

The change in the tax system refers to when a business requires a new or improved gas or electricity supply when a utility company may insist the business meets some or all of the costs.

This fresh controversy surrounds claims that some, as yet unnamed, energy suppliers have been seeking to claim tax relief for the entire cost of putting in a new supply or upgrading and existing one, even though they have not met the full costs themselves.

The Treasury has now decided to clamp down on energy suppliers that have been making claims for tax relief on costs met by customers accusing utilities companies of exploiting a tax loophole, which it has now closed. It claims it has already turned down £50m worth of requests.

The Exchequer claims that this could result in “up to £900m” in lost tax as it continues to target businesses.

HMRC said: “The utility companies’ previous practice has been not to claim capital allowances for costs already covered by business customers.

“Recently, however, some gas and electricity distribution companies have attempted to change that and make new claims for past expenditure, which if they succeed would generate large windfall tax repayments and reductions for the companies concerned.

“New legislation confirms that these claims cannot now be made. HMRC will be robust in challenging those claims that have already been submitted.”

Draft legislation will be introduced today (29 May) and will be part of the current Finance Bill.