« Back to Our Blog

Can you sell power back to the National Grid tax-free?

Photovoltaic (PV) systems like solar panels harness energy from sunlight and convert it into electricity, which you can use to power your home or business.

Generating renewable electricity instead of relying on an energy supplier can help to reduce your energy costs. The Energy Saving Trust estimates the average household could save £455 a year by installing solar panels on the roof.

If you generate more electricity than you need, you can sell the excess back to the National Grid, converting the extra energy into extra cash.

With energy prices remaining high, now could be a great time to install solar panels on your property, generating your own energy and selling the excess back to the Grid – but you should be aware of the rules, including potential taxation.

How does the Smart Export Guarantee (SEG) work?

The Smart Export Guarantee (SEG) is a government-backed scheme that requires electricity suppliers with at least 150,000 customers to provide a tariff that pays small-scale electricity generators for the energy they export to the National Grid.

To qualify for the SEG scheme, your installation must be accredited by the Microgeneration Certification Scheme (MCS), your solar panels must have a capacity of 5 megawatts or less, and you’ll need a smart meter to track half-hourly energy exports.

Generators must apply for an SEG tariff through an approved supplier. This doesn’t have to be the same as your current import supplier, as multiple suppliers can use the same smart meter. You can shop around for the SEG licensee with the best rates.

SEG tariffs can be fixed or variable, and rates can vary from 1p/kWh to a possible 15p/kWh, but the best rates are usually available when you use the same energy supplier, as most companies will offer discounts for existing customers.

Are solar energy exports exempt from tax?

The amount of money you can make from selling excess solar energy back to the National Grid depends on many factors, such as the location of your home, how much sunlight the roof panels receive every day, and how much energy your property uses.

However, you have to think about the possibility of paying tax on the money you make from selling energy to the Grid. This income is only exempt if the system is installed on or near a residence, and does not generate more than 20% in excess of the home’s consumption.

This means a domestic property can generate up to 120%
of the energy needed to run the home, and sell up to 20% excess energy without it becoming taxable.

Even if the sales do become taxable, they could still be exempt under the £1,000 trading allowance. If your annual income from excess energy sales is more than this tax-free allowance, you must report it to HMRC, though you could still deduct the £1,000 from the taxable total.

If your microgeneration system is too large, or you don’t have a solar battery for storing excess energy, you may end up selling too much back to the Grid. These taxable sales could mean it takes much longer than the usual 10-year period to recoup the costs of the initial investment in the solar panel system installation.

There’s also the fact that VAT-registered businesses who generate their own energy and sell excess to the Grid must agree to self-billing of output tax, with VAT added to export payments that must be declared to HMRC on tax returns.

You can learn more about SEG tariffs through the government website, and if you have concerns about your tax liability, you can get in touch with our accountants in Barnsley.