Death and taxes as the old saying goes are two of the certainties of life. A couple of weeks ago we had an informative and thought-provoking meeting with Valuation Office Agency. I was there with David Warellow the NT tax specialist, the Hafod y Llan project team and Trygve from the Welsh Government who was there to understand the impact on community renewables.
I like to come away from meetings having learnt something and this one is up there in the top ten. I have never been in a meeting where I found myself using the term ‘heriditiment’ and it was used freely. Will tell you what it means later ( unless you know already!)
We have been working on the hydros and various renewables business cases and had based the business rates aspect on what we have been paying at Aberdualais Falls hydro. (£3800 pa on a 238kw system)This I found was a mistake – ask the VO for an evaluation early on…it’s more than you think! The meeting came about because of an issue two of our engineers were facing at other hydros namely a 3-500% increase in business rates from the expected.
Then we got into the black art. Namely business rates valuation. First ask is – business or domestic? If business proceed to calculation (if domestic it still does not preclude you from a possible council tax re-banding next time it’s undertaken or if it’s a small stand alone system which is dedicated to export you could be subject to business rates) under 50kw it roughly works out at £65 per Kwp x the size of your system x the corporation tax level (eg 40%) this will give a rough estimate of your rateable valuation.
On the bigger stuff it then gets more complicated. It is based on the open market rental value of the system times minus operational and maintenance costs x the corporation tax. (if the perceived rental value is £100k per annum, less O&M (eg £10k pa) x 40% corporation tax = a business rate valuation of £36k ) this is very, very, very simplified. Load factor, capital cost, banding of system sizes… (open market rent is what its worth if you build a system and then rented the site out to a commercial company)
Ah then we get to the fact that this is all based on 2008 valuation which is pre FIT. The next revaluation occurs in 2013 and will come into force in 2015. I’m sure the rateable value will be much lower… right!
It was an interesting meeting but also a wake up call in terms of what’s to come in 2015. The team from the VO are just implementing Gov policy. The term greenest Gov ever might come bach to haunt them! Many people are being caught out on the rates aspect inc the professionals. Awareness needs to be raised
Why not make the commercial-scale fit slightly smaller and zero the business rates. It will save money for all in long-term. The accountants might not be happy but there are plenty more taxes coming on the green front. Have a look-see whats happening to the personal allowance on electric company vehicles in the next couple of years!
Heriditiment (follow the link if you dare)