Finance Bill Tracking Service 2007 | Budget 2007 | Budget Notes

BN64 Microgeneration: tax treatment of renewables obligation certificates

Who is likely to be affected?

1   Householders who pay income tax, have installed microgeneration technology in their home and receive Renewables Obligation Certificates (ROCs).

General description of the measure

2   Legislation will be introduced in Finance Bill 2007 to clarify the tax treatment of ROCs obtained as a result of domestic microgeneration.

3   Where a private householder installs microgeneration technology in their home primarily for the purpose of generating electricity for their personal use the receipt of a ROC will not be subject to income tax and gains made on disposal of a ROC will not be subject to capital gains tax.

Operative date

4   The income tax treatment will apply to ROCs received on or after 6 April 2007. The capital gains tax treatment will apply to ROCs disposed of on or after 6 April 2007.

Current law and proposed revisions

5   ROCs are issued by Ofgem to accredited generating stations to certify the quantity of electricity produced from qualifying renewable sources. A householder can sell the ROCs they receive and energy suppliers can use ROCs to meet their Renewables Obligation. This Obligation requires suppliers to source an increasing percentage of their sales from eligible sources of renewable energy.

6   The tax treatment of ROCs received by a householder depends on the specific circumstances. Liability to tax may arise in three ways:

•   Under section 5 of the Income Tax (Trading and Other Income) Act (ITTOIA), income tax is charged on the profits of a trade.

•   Under section 687 of ITTOIA income tax is charged on miscellaneous income.

•   Under section 2 of the Taxation of Chargeable Gains Act 1992, capital gains tax is charged on any gains arising on the disposal of an asset.

7   Householders who are not trading, but who microgenerate primarily to meet the electricity needs of the house, will be exempt from income tax on the acquisition of ROCs, and from capital gains tax on the disposal of ROCs, where they receive those ROCs for electricity generated by the house's microgeneration system. The exemption will apply to microgeneration systems as defined in section four of the Climate Change and Sustainable Energy Act 2006.

Further advice

8   If you have any questions about this change, please contact Ruth Curtice on 020 7147 2602 (email: or Craig Mason on 020 7147 2599 (email: Information about Budget measures is available on the HM Revenue & Customs website at