Grid-Fed Electricity and Tax.

[Ivan]

How does this work? I like the idea of net metering - eg America - where you pay/get paid for the balance of units at the end of the quarter.

In the UK, we account for the two separately. I'd be very interested to know how this is accounted for (eg knocked off bill or receive bill and cheque at the same time). Paul - how does yours get accounted for? Ted?

I'm also interested from a tax perspective. eg if I have an annual electricity bill of £1000 and export £500 of electricity. Do I simply claim my electricity costs were £500, or would the taxman say, ah but you've sold £500 worth of electricity, which is a taxable gain (what sort of gain? capital gain? income?). The way this is treated is obviously quite important from a payback and viability point of view.

And finally, what happens if I use £1000 worth of electricity, but generate £20 000 worth?

[Rooster]

And don't forget the VAT. How does that work?

[dhaslam]

There is an odd VAT situation if the net amount of the electricity bill is in credit.   The householder normally wouldn't be registered for VAT so if VAT is added the supplier cannot claim a credit.  For this reason they would normally want to have a net charge.   It is doubtful whether the Revenue could insist on full separation.      It is quite common for large organizations to get the VAT charge wrong.  In Ireland phone credit cards from one company had no VAT shown on the invoices to the shops and the charge didn't allow for VAT to be paid on the sale. 

[Ted]

We get a separate cheque for ours.  No VAT involved.

Brown did announce that income from domestic renewables was to be tax exempt a couple of years ago (Budget 2007 maybe?), but I haven't seen anything specifically in writing since to confirm this.


[edit]
Have just found this: http://www.hmrc.gov.uk/budget2007/bn64.htm  but it is only talking about income from ROCs being tax exempt. I'm pretty sure that Brown announced that all income from domestic renewables would be tax free. 

[later edit]

The Budget Report 2007 said this in para 7.43:

In addition, as announced in the Pre-Budget Report, Finance Bill 2007 will legislate so that,
where an individual householder installs microgeneration technology in their home for the
purpose of generating power for their personal use, any payment or credit they receive from
the sale of surplus power is not subject to income tax, and they are not required to include it
on their income tax return. Budget 2007 announces that, for these same individuals, any
Renewables Obligation Certificates acquired in respect of electricity generated from
microgeneration technologies installed on their property will not give rise to an income tax
or capital gains tax charge.

http://news.bbc.co.uk/1/shared/bsp/hi/pdfs/21_03_07_budget_report.pdf

I'll find Finance Bill 2007 and see what is in there.

[dhaslam]

The basic rule for Income Tax is that  income  is only taxable if the purpose of the income is to make a living.   It isn't something that is easy to establish but the usual small  incomes like photographs published or surplus vegetables sold are not taxable.  It works both ways because if an incidental income is not taxable then capital allowances cannot be claimed.

[Ted]

Sections 20 and 21 of The Finance Act 2007 has wording that is surprising loose and open. So as long as your "intention" is not to produce much more than you consume you're OK.

http://www.opsi.gov.uk/acts/acts2007/pdf/ukpga_20070011_en.pdf

Domestic microgeneration

20 Income tax exemption for domestic microgeneration

(1) In ITTOIA 2005, after section 782 insert—

“782A Domestic microgeneration

(1) No liability to income tax arises in respect of income arising to an
individual from the sale of electricity generated by a microgeneration
system if—

(a) the system is installed at or near domestic premises occupied by
the individual, and

(b) the individual intends that the amount of electricity generated
by it will not significantly exceed the amount of electricity
consumed in those premises.

(2) In subsection (1)—
“domestic premises” means premises used wholly or mainly as a
separate private dwelling, and
“microgeneration system” has the same meaning as in section 4 of
the Climate Change and Sustainable Energy Act 2006.”

(2) The amendment made by subsection (1) has effect for the tax year 2007-08 and
subsequent tax years.

21 Renewables obligation certificates for domestic microgeneration

(1) In ITTOIA 2005, after section 782A (inserted by section 20) insert—

“782B Renewables obligation certificates for domestic microgeneration

(1) No liability to income tax arises in respect of the receipt by an
individual of a renewables obligation certificate if—

(a) the individual receives the certificate in connection with the
generation of electricity by a microgeneration system,

(b) the system is installed at or near domestic premises occupied by
the individual, and

(c) the individual intends that the amount of electricity generated
by it will not significantly exceed the amount of electricity
consumed in those premises.

(2) In subsection (1)—
“domestic premises” and “microgeneration system” have the
same meaning as in section 782A, and
“renewables obligation certificate” means a certificate issued
under section 32B of the Electricity Act 1989 or Article 54 of the
Energy (Northern Ireland) Order 2003.”

Similar paras make capital gains on ROCs tax exempt too.

Just for completeness the definition of microgeneration system in section 4 of
the Climate Change and Sustainable Energy Act 2006 says:

http://www.opsi.gov.uk/acts/acts2006/pdf/ukpga_20060019_en.pdf

(9) In this section—
“electricity microgenerating system” means a microgeneration system for
generating electricity;
“microgeneration system” means any plant or system of plant for
generating electricity or producing heat—

(a) which, in generating electricity or (as the case may be)
producing heat, relies wholly or mainly on a source of energy or
a technology mentioned in subsection (7) of section 82 of the
Energy Act 2004 (c. 20), and

(b) whose capacity to generate electricity or (as the case may be) to
produce heat does not exceed the capacity mentioned in
subsection ( 8 ) of that section;
“plant” includes any equipment, apparatus or appliance.

and section 82 of The Energy Act 2004 says:

http://www.opsi.gov.uk/acts/acts2004/pdf/ukpga_20040020_en.pdf

( 7) Those sources of energy and technologies are—
(a) biomass;
(b) biofuels;
(c) fuel cells;
(d) photovoltaics;
(e) water (including waves and tides);
(f) wind;
(g) solar power;
(h) geothermal sources;
(i) combined heat and power systems;
(j) other sources of energy and technologies for the generation of
electricity or the production of heat, the use of which would, in the
opinion of the Secretary of State, cut emissions of greenhouse gases in
Great Britain.

( 8 ) That capacity is—
(a) in relation to the generation of electricity, 50 kilowatts;
(b) in relation to the production of heat, 45 kilowatts thermal.

[Ted]

So, to answer your questions Ivan:

In the UK if you get an income from selling electricity generated from any of the listed types of renewables upto 50kW capacity you will not be subject to income or capital gains tax unless you "intended" to generate significantly more than you consume.

[Justme]

So if I have that right you can supply

50 kw x 24 hours x 365 days = 438000kwh
438000kwh x 0.15p = £65700
Minus the amount used by the householder say even £5.7k's worth is a nice tax free income.

Not sure that would pass the "intended" rule mind you.

Justme

Now what will 200kw (4 hours of sun per day) of panels cost (about £600k plus infrastructure call it £1m so a 17 year pay back) me lol

[Ivan]

Thanks very much Ted, I'm glad to hear that - otherwise I could see the Taxman 'discovering' it as a loophole and retrospectively claiming taxi on the 'earnings'.

Justme,
I would assume that the critical thing is the intention to produce more than you consume. eg it would be quite reasonable for a farm to generate 50kW of power from PV, because the chances are it would consume all the energy produced. However, a home user probably couldn't argue that they aren't intending to produce an excess with over 5kW of PV.

[charlieb]

The basic rule for Income Tax is that  income  is only taxable if the purpose of the income is to make a living.   It isn't something that is easy to establish but the usual small  incomes like photographs published or surplus vegetables sold are not taxable.  It works both ways because if an incidental income is not taxable then capital allowances cannot be claimed.

Does that mean buskers (like me, who do it for beer money/practise rather than my daily bread) shouldn't formerly pay tax?  I've always felt very very slightly guilty..               (It's an interesting thought whether a busker would be allowed to pay tax in coins. It is a basic truth that paper money is worth considerably more to a busker than coins are (I often exchange with friends at a rate of #12 for a tenner), so demanding tax in paper or electronic money would be harsh.  Anyway, the thought of counting out and logging every pound made busking would make the whole thing a nightmare).

[renewablejohn]

So if I have that right you can supply

50 kw x 24 hours x 365 days = 438000kwh
438000kwh x 0.15p = £65700
Minus the amount used by the householder say even £5.7k's worth is a nice tax free income.

Not sure that would pass the "intended" rule mind you.

Justme


Now what will 200kw (4 hours of sun per day) of panels cost (about £600k plus infrastructure call it £1m so a 17 year pay back) me lol

The rate is actually better than quoted above especially if you add in the double roc's. Its the best retirement pension we have found although we will use hydro to guarantee the 24 hour generation and the hydro installation cost is less than 100k to which our local county council will contribute 20k.

[Amy]

So, to answer your questions Ivan:

In the UK if you get an income from selling electricity generated from any of the listed types of renewables upto 50kW capacity you will not be subject to income or capital gains tax unless you "intended" to generate significantly more than you consume.

So if you just happened to install a 50kw turbine when your personal use was only say 10kw, is that a genuine oversight?

[PhatBob]

I've only ever found the Tax office to be helpful when I call their Self Assessment line, usual caveats apply: Make sure that you get the name of the Technical Officer, and if you're in doubt over the advice write to Technical Officer and get it in writing.

[Ivan]

From the info that Ted helpfully posted no tax is liable if you don't 'intend' to  produce 'significantly' more than you use. So as long as you could justify that given the info at your disposal you didn't intend to do it, you'd be ok. Of course, intent is one of the most difficult things to prove or disprove in a court of law, so as Ted said, it's very loosely worded, and just waiting for a court to clarify.

[Justme]

So if I do a biss plan for a new venture that uses LOTS of power then size my system to provide that. IF that biss fails cough cough I dint "intend" to be producing to much. LOL

Like most stuff written in this country its full of if's, but's, perhaps's & maybe's.


Justme