As the 31 January self-assessment deadline for the 2024–25 tax year nears, tens of thousands of UK households with rooftop solar panels are being urged to review their tax obligations to avoid automatic penalties from HM Revenue & Customs (HMRC). What many solar owners assume is a straightforward way to cut energy bills and earn a modest income from selling surplus electricity back to the grid is, for a growing number, a tax compliance issue with real financial consequences.
How solar panels can trigger a tax requirement
Under the government-backed Smart Export Guarantee (SEG) scheme, households with photovoltaic (PV) solar panels can receive payments from energy suppliers for electricity they export to the national grid. These SEG payments typically range from a few hundred pounds a year, adding a small but valuable stream of supplementary income for many households.
Ordinarily, homeowners benefit from solar panels without involving HMRC, because using the power on site to reduce bills is not a taxable event and solar installations themselves qualify for favourable VAT treatment. However, the tax situation changes when export earnings and other side income push total untaxed receipts above HMRC’s £1,000 trading allowance for the tax year.
Legally, any resident who receives more than £1,000 in combined miscellaneous and trading income, including SEG payments, freelance earnings, online sales or other untaxed receipts, must register for self-assessment and submit a tax return. Missing the deadline triggers an automatic £100 late-filing penalty, even if no tax is ultimately owed.
Scale of the issue and homeowner awareness
Industry estimates suggest that around 1.6 million UK households now have rooftop solar panels, a rapid rise fuelled both by environmental motives and the incentive of SEG payments. Combined with broader trends towards the gig economy and part-time side earnings, this has placed a large number of solar owners close to or above the trading allowance threshold.
Research and expert commentary indicate that more than 600,000 solar panel owners could exceed the £1,000 threshold when SEG income is added to other untaxed earnings. With a typical annual penalty of £100 for late filing, more than 54,000 households risk automatic fines if their returns are filed late or not at all. This fine could wipe out a significant proportion of the modest annual earnings many make from SEG payments.
For many homeowners, the surprise stems from a lack of direct communication from HMRC. SEG income arrives via energy suppliers with no automatic tax deduction and no immediate notification that it counts towards taxable receipts. Unlike wages taxed at source through PAYE, these earnings are not accompanied by routine tax reminders, leaving some households unaware of their obligations until penalties loom.
What homeowners need to do before the deadline
With a few weeks to go before the January 31 deadline, tax specialists and financial advisers are offering clear guidance. The first step is to gather all income records for the tax year from April 6 2024 to April 5 2025, including:
- SEG payment summaries from energy suppliers
- Records of other untaxed earnings, such as freelance work or casual jobs
- Bank statements and documentation of any selling or side business income
If this total exceeds £1,000, homeowners must register for HMRC’s self-assessment regime, obtain a Unique Taxpayer Reference (UTR) if they do not already have one, and file a return before the end of January. Even those with small amounts of export earnings are advised to check their figures carefully, as exceeding the threshold by a few pounds creates a legal filing requirement.
Online filing is generally recommended, as it provides immediate confirmation of completion and helps avoid last-minute delays, which are common at this time of year. Some homeowners have reported increased demand on HMRC’s digital services and customer support, underscoring the importance of starting the process early.
Penalties and long-term implications
HMRC’s penalty regime is structured so that an initial failure to deliver a return by the deadline results in an automatic £100 fine. Additional penalties can accrue over time if returns are further delayed, and interest may be charged on outstanding tax liabilities. While this fine is nominal in absolute terms, it can represent a significant portion of the modest income many solar homeowners earn from SEG payments.
Importantly, HMRC applies penalties regardless of whether the taxpayer actually owes additional tax, the mere act of missing the filing deadline triggers the fine. This feature of the tax system is designed to encourage compliance, but it also means that unawareness of the rules offers no defence once a penalty is applied.
How this fits into broader solar adoption trends
The tax compliance issue comes against a backdrop of strong growth in domestic solar adoption in the UK. Government incentives, environmental awareness and rising energy costs have driven uptake, with solar panels increasingly seen as a way to reduce household energy bills while contributing to national renewable targets.
For many households, solar panels remain an effective tool for cutting energy costs, even when tax obligations are factored in, but the current situation highlights a gap in public understanding of how export income is treated for tax purposes. Clearer guidance from both HMRC and industry partners could help reduce confusion in future tax years, especially as SEG and similar schemes continue to expand.
Practical advice and next steps
Financial advisers stress three practical principles for solar panel owners as the deadline approaches: do not assume small amounts of income are too trivial to matter, start filing early to avoid peak-time delays, and keep accurate records of all SEG payments and earnings from side activities. If there is any doubt about whether a return is required, seeking professional tax advice or using HMRC’s online guidance tools can provide clarity.
For households already registered for self-assessment, including SEG income in the next return is essential. Those new to the system should allow time for registration and UTR issuance, as delays in receiving these details can affect the ability to meet the deadline.
In summary, while solar panels offer environmental and financial benefits, the tax implications of export income are catching a notable minority of UK owners unprepared. As the January 31 deadline draws near, a proactive approach to HMRC compliance can help avoid penalties and ensure that clean energy benefits are realised without unintended costs.
