Photovoltaic or PV system allows households to generate free electricity from solar energy. In 2008, the UK government introduced the feed-in tariff (FITs) in the Energy Act of November 2008. This initiative is done to help the government meet its desired goal of reducing carbon emissions. A number of PV users are asking, is the income I receive from FITs taxable?
FITs is introduced to encourage households and corporations to invest in renewable systems such as PV solar technology. The UK government implemented the FIT scheme on April 1, 2010. In this plan, the households will be paid for the electricity the solar panels produced at 41.3p for every kilowatt hour whether the electricity is utilized or not. This was increased to 43.3p for every kilowatt hour in 2011. This tariff is called the generation tariff to be paid by the power companies not by the government.
The income received from FITs is not taxable if used in the usual domestic setting. FITs for PV technologies is guaranteed for the next 25 years. The payment is associated to the Government Retail Price Index (RPI). This means the pay may rise along with the inflation of the market.
According to the 2009 Pre-Budget Report, the households using renewable energy for their own use are not to be taxed on the feed-in tariffs. Commercial organisations and non domestics are levied taxes for the FITs. For organisations, corporate tax will apply at 22% of the profits. The corporations however may use the Enhanced Capital Allowance to offset the costs of the panels against income subject to tax. This can reduce tax payments of the organisation to almost next to nothing.
To become eligible for FITs, the PV installation needs to be installed by an installer that holds a Microgeneration Certification Scheme (MCS). The PV panels must also be certificated by the MCS. The owner can install export meters to determine the amount of electricity exported.