New legislation set out by the government confirms tax rules prevent businesses claiming capital allowances for costs met by other businesses.
The legislation, which comes into immediate effect, will prevent gas and electricity distribution companies in particular from making new claims for historic costs dating back decades that have already been paid by their business customers.
These claims could result in up to £900m in tax lost to the Exchequer.
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.
Chancellor of the Exchequer, George Osborne said:
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 draft legislation, introduced Wednesday 29 May, will be introduced in the current Finance Bill.