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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Specific receipts: domestic microgeneration: renewables obligation and feed-in tariffs

The term ‘microgeneration’ is used to refer to electricity generation equipment of the smallest capacity which covers generation of electricity up to 50 kW. At the lower end of the range are microgenerators intended for installation in domestic premises. Support for microgeneration takes various forms including the renewables obligation and feed-in tariffs.

Renewables obligation

The renewables obligation was introduced in April 2002 as the main mechanism for supporting renewable energy. Generators of all sizes can claim renewables obligation certificates (ROCs) in relation to renewable electricity that they generate. The generator can then sell their ROCs to another person.

The sale of a ROC normally has Corporation Tax, Income Tax or Capital Gains Tax consequences depending on the status of the seller and the precise facts. But see BIM40530 for exemptions for income or gains arising to an individual from domestic microgeneration.

Feed-in tariffs

The renewables obligation remains the primary mechanism to encourage deployment of large scale renewable electricity generation but as of 1 April 2010 a feed-in tariffs (FITs) scheme was introduced to encourage additional small scale electricity generation. FITs consist of two elements, a generation tariff which is receivable in relation to electricity generated and an export tariff which is receivable for electricity exported to the wider energy market. Microgenerators eligible for FITs are not eligible for support under the renewables obligation.

Generation tariff

A generation tariff is payable by reference to the electricity generated. The tax treatment of the tariff for Income Tax and Corporation Tax purposes will depend on the nature of the receipt in the hands of the recipient. In general where the receipt is received in a business capacity it will be a business receipt on normal principles. For the treatment of sums received in a business capacity see BIM40450.

A generation tariff received other than in a business capacity may still be chargeable to Income Tax or Corporation Tax where it amounts to an annual profit chargeable as miscellaneous income. See BIM100105. In general, a miscellaneous income charge may arise if the person receiving the tariff is providing a form of service or facility in connection with the electricity being generated

Where the generation tariff is received by an individual, other than in a business capacity, and it is not chargeable as miscellaneous income, no Income Tax liability will arise. This will usually be the case where an individual generates electricity mainly for use in their own home.

Where an individual occupies premises for both private and business purposes a generation tariff received in a business capacity will be a business receipt on normal principles. A generation tariff received in a private capacity, which is not chargeable as miscellaneous income, will not be liable to Income Tax but the reduced cost of electricity should be reflected in the cost of electricity attributed to business use.

Export tariff

An export tariff is payable for electricity exported to the wider energy market. Where the receipt is received by a person in a business capacity the tariff will be a business receipt on normal principles.

Where the export tariff is received other than in a business capacity it will generally be chargeable to Income Tax or Corporation Tax as miscellaneous income (see BIM100105) unless the recipient is an individual and the Income Tax exemption in S782A Income Tax (Trading and Other Income) Act 2005 applies. See BIM40520.