With continuing high electricity prices, now could be a very good time to install solar panels at your property. Without an expensive solar battery, selling excess electricity back to the national grid is sensible. Normally such sales are free from tax, but there is an exception.
Exemption rules
If the intention is to match the individual’s own home consumption needs, the microgeneration system’s sale of excess electricity becomes exempt.
- The system must be installed at or near an individual’s home, e.g., rooftop solar panels; and
- The amount of electricity generated by the system should not significantly exceed domestic needs – HMRC allow a 20% margin here, so the system can generate 120% of domestic needs before sales to the grid become taxable.
Even if electricity sales to the grid are taxable, they might still be covered by the £1,000 trading allowance. If income exceeds the allowance, a £1,000 deduction can be claimed.
Unless you use a solar battery, you may end up selling back around half of the generated electricity to the grid. Install too large a system and these sales will be taxable. This will extend the typical eight-to-ten-year payback period for solar panels, especially if higher rates of tax are involved.
Smart export guarantee
Big suppliers pay for exported electricity under the smart export guarantee (SEG) scheme. Rates vary (1p to 15p/kWh), so choose wisely. Choosing a variable tariff could potentially provide even higher rates.
The same energy supplier typically offers the best SEG rates.
Details of the best SEG available rates can be found here.
How can we help you?
If you would like advice about allowances and relevant tax rules, please contact us.
Author: Paige Collins, Consultant, Plus Accounting
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