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Monday, January 18, 2021

George Bull, Partner at Baker Tilly, comments on solar panel tax exemption

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User should see is a reduction in their electricity bills

“Allowing a company to install solar photovoltaic (PV) panels on your roof looks like a good low-cost way to cut domestic fuel bills. The company meets the costs of installation and all the user should see is a reduction in their electricity bills. If surplus electricity is generated which is then sold to an electricity supplier, the homeowner is entitled to receive a payments under the feed-in-tariff.

“But should the householder be worried about tax?

“On the face of it, tax law (Section 782A of the Income Tax (Trading and Other Income) Act 2005) exempts micro-power generation by domestic systems. However, the income tax exemption is denied if the owner intends the installation to generate substantial surplus electricity. The exemption is clearly not satisfactory! In his 2009 PBR speech, Alistair Darling proposed extending the income tax exemption to the sale of surplus energy, but there has been no further legislation or consultation on the subject. With more companies offering householders free installation of PV panels, we urge the government to clarify the income tax exemption at the earliest opportunity.

“Where VAT is concerned, the picture is clearer. This income will be subject to VAT if the homeowner is VAT-registered by virtue of other business activities. However, where the homeowner is not VAT-registered it is very unlikely that the income generated by the sale of this electricity would push the owner over the VAT registration threshold (currently £70,000 per year). As such, in most circumstances no VAT would be payable by the homeowner on the sale of the surplus energy.”

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