Taxation of the RHI

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

In principle, the Renewable Heat Incentive provides 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 from income tax for householders first announced in the pre-budget report 2009.

Under this exemption the tariffs received for energy produced under the Feed-In Tariffs are exempt from income tax. It is expected that income from the Renewable Heat Incentive will be tax-free in the same way.

For businesses

There is no equivalent exemption for business users, who therefore have to declare the income from RHI 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.

The 2011 Budget announced the intention of making Feed-In Tariff installations ineligible under these schemes with effect from 2012 (see here). As shown, there have since been some concessions for hydropower and anaerobic digestion and for community interest companies.

It seems likely that at the same time, or soon afterwards, RHI installations will be excluded in the same way.