Farmers who have diversified into renewable energy generation over recent years could find they are now liable to pay business rates.
Agricultural land and buildings are generally exempt from business rates when used solely for agricultural operations. But the addition of a renewable energy project could change that.
Rates largely depend on how much energy is used on-farm and how much is exported to the grid. Below is a summary of the key points based on advice kindly supplied by the Valuation Office Agency (VOA), Scottish Assessors Association (SAA), Richard Palmer at Butler Sherborn Energy and Alexander Creed at Strutt & Parker.
When are business rates applicable?
The VOA says any renewable energy installation not grid-connected and producing power solely for use in connection with agricultural operations is exempt from business rates. Previous case law suggests “solely” for use actually allows up to 6% of power to be used for non-agricultural use and to remain exempt.
Any size installation can be exempt under these rules, however larger installations tend to be grid-connected and exporting more than 6% of electricity, so would not benefit from agricultural exemption.
If a renewable energy installation is not exempt as agricultural, then it may be exempt from rating for the duration of the 2010 rating list (until 2017) under the Valuation for Rating (Plant and Machinery) Regulations 2008. In this case, the installation must be less than 50kW installed capacity and export no more than 50% of power produced.
In Scotland, the Non-Domestic Rates (Renewable Energy Generation Relief) (Scotland) Regulations 2010 provide relief to most installations 50kW in size or less.
If most power is exported to the grid, the renewable generation will be liable for business rates for its full capacity.
The same principles apply to renewable heat generation for less than 45kWh. Installing, for example, a biomass boiler could also have an impact on business rates liability, but generally this would only be the case if there is some commercial arrangement for the sale of the heat rather than for on-site use.
Who is liable to pay business rates?
Liability depends on who is in “rateable occupation”. In the case of solar PV installations, this is likely to be the individual or company that operates and maintains the installation, keeps the Feed-in Tariff income and generates the power.
If a farmer lets his field to a commercial solar PV generator, then this third party and not the farmer would be responsible for the rates.
Can business rates be backdated?
A rating assessment applies from the date the development is completed, or from 1 April 2010 (the date the current rating lists came into force), if the non-exempt use commenced prior to that date. Therefore, business rates can be backdated if a renewable installation is subsequently found to be rateable.
However, where ratepayers install plant and machinery with micro-generation capacity (up to 50kW) on or after 1 April 2010 and the power produced is mainly consumed on site, the plant and machinery (but not the land) will not be assessed until the next revaluation, due in 2017.
How do I know the rateable value?
The VOA and SAA can provide rateable value estimates if given enough information about a proposed development. Non-domestic rates should be factored into any project plans where applicable.
Would grazing sheep under solar panels maintain “agricultural” status and avoid business rates?
Even where in-field self-developed solar PV installations allow for on-going grazing, the land is no longer solely used for agriculture and will cease to be exempt (assuming >50% is exported to the grid).
How business rates are calculated:
- Based on the “rateable value” of your property (set by the VOA in England and Wales, and assessors in Scotland) multiplied by the business rates multiplier (set by government)
- The rateable value broadly represents the annual open market rent on a particular date
- Revaluations usually take place every five years to reflect market changes. The last revaluation was 1 April 2010. The next is in 2017
- The business multiplier for 2013/14 is 47.1p in the pound for England, 46.4p in Wales and 46.2p in Scotland. For small business in England (where the total rateable value is under £18,000), it drops to 46.2p. In Scotland, the Small Business Bonus Scheme provides relief where the total rateable value is under £25,000
- More advice from the VOA and the SAA
- Business rates are generally not an issue for small sub-50kW renewable projects where most energy is used on site
- Rates are more applicable where generation capacity is much higher than on-site demand and more than 50% of electricity is exported
- Installing large biomass district heating systems on farms and estates may trigger a review of the rateable value of residential and commercial properties (if capital value has been enhanced as a result of the installation)
- There is possibly more of an issue for wind/AD due to the higher generation capability of every kW of installed capacity than solar PV
- Your local council will send you a business rates bill in February or March each year – for the following tax year
- Consider whether small business property relief is applicable to the renewable installation and your business