Taxation of FITs

There are some special provisions for taxation of renewable energy installations and the income derived from them

In principle, the Feed-in Tariffs provide an income stream which helps to repay the capital cost of installting the renewable energy installation. Depending on who owns the system, there may be tax implications:

For private individuals

There is a special exemption for householders first announced in the pre-budget report 2009.

Under this exemption the tariffs received for energy produced under the FITs (both the generation and the export tariff) are exempt from income tax provided that the households:

use renewable technology to generate electricity mainly for their own use

For businesses

There is no equivalent exemption for business users, who therefore have to declare the income from FITs installations as part of their taxable revenue.

Companies can receive capital allowances for the cost of the installation as for other items of capital expenditure.

Enhanced capital allowances

Some types of renewable energy installation were available for Enhanced Capital Allowances (ECAs), but the Treasury intends to remove all technologies eligible for FITs and the RHI from the ECA scheme (see here).

VCT and EIS tax breaks

Tariff-eligible installations can be undertaken by companies supported by Venture Capital Trusts (VCTs) or financed under the Enterprise Investment Scheme (EIS), both of which provide tax-efficient vehicles for the investors.

However the 2011 Budget announced the intention of making Feed-In Tariff installations ineligible under these schemes with effect from 2012 (see here). The Treasury consultation subsequently proposed (in sections 4.16 to 4.21) some concessions for hydropower, anaerobic disgestion and community interest companies.