The taxation of payments received from domestic and non-domestic Renewable Heat Incentive schemes.
Renewable Heat Incentive (RHI) schemes run by the UK government provide financial incentives to increase the uptake of renewable heat.
There are 2 schemes:
The schemes have separate tariffs (or payments), conditions and processes. However, both schemes provide subsidies in the form of payments to eligible renewable heat generators.
The tax you pay isn’t affected by the type of RHI scheme making the payment but on how the heat is used.
If you’re using heat solely for personal domestic use, the payments you receive aren’t chargeable to Income Tax.
If payments are received for both personal domestic use and another purpose (such as the provision of heat to a neighbour for a fee) the payment relating to the non-personal element is chargeable to Income Tax as miscellaneous income. This is because you’re providing a service in connection with the heat generated.
Where payments are chargeable to Income Tax the operating costs of the heating system attributable to the heat provided for non-personal domestic use are deductible in working out the miscellaneous income.
If you occupy premises that has both private and business uses (such as having an office in your home) the payments are still not chargeable to Income Tax but they should be deducted from the cost of heating before apportioning any of the cost to business use.
Record miscellaneous income on a SA100 Self Assessment Tax Return in the section on ‘Other UK income not included on supplementary pages’.
If you’re a business or a trader any RHI payments you receive are a business receipt and the normal Income tax and Corporation tax rules for receipts and deductions apply.
If you’re a landlord the tax treatment on payments received for heat generated for the use of a tenant depends on whether you charge your tenant separately for the heat provided.
If there’s no separate charge for the heat provided the payments should be deducted from the cost of providing heat in calculating the allowable heating costs of the property business. Any excess of payments over heating costs is taxable as property income.
If you charge separately for the heat used by your tenant the payments received are chargeable as miscellaneous income. The heating costs attributable to the generation of the heat provided would be deducted in working out the miscellaneous income.
If RHI payments are being paid for a heating system you can’t claim the 100% first year allowances on energy-saving plant or machinery for that system. Apart from this exception businesses can claim capital allowances on plant or machinery as normal.