The tax payable on renewable energy systems differ depending on the industry or sector.
For all domestic installations the income is completely tax free, however, for non-domestic projects the returns on your investment is subject to taxation. The earnings should be accounted for, just as any other income into a non-domestic venture. However, there are other tax benefits in relation to how the capital value is treated.
Businesses can obtain tax relief on the cost of a renewable energy system such as solar PV (photovoltaic) systems or wind turbines by claiming Annual Investment Allowance (AIA). This allows up to £25,000 of expenditure on qualifying plant and equipment to be offset in full against the business' taxable profit.
If the AIA available is not sufficient to fully allow the offset of expenditure on solar PV, any excess is allowed against taxable profits at the integral fixtures and fittings rate of 10% per annum. The 10% is calculated each year on the balance of the expenditure not previously offset against profit. A business can choose which capital expenditure to allocate against the AIA and it is beneficial to allocate solar PV ahead of other capital expenditure such as plant and machinery which would qualify for the higher 20% allowance.
Running alongside the AIA is an additional relief, Enhanced Capital Allowance (ECA). This is intended to encourage investment in energy saving plant and machinery and provide the same 100% offset against taxable profit as AIA but is not capped as to the amount that can be claimed. Enhanced Capital Allowance is only available if you are not claiming the Renewable Heat Incentive or the Feed-In Tariffs.