Business rates heat network relief: local authority guidance 2023-24
Published 21 February 2023
Applies to England
© Crown copyright 2023
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About this guidance
1. This guidance is intended to support local authorities in administering the Heat Networks Relief for the year 2023/24. This guidance applies to England only.
2. This guidance sets out the criteria for the Heat Networks Relief scheme for 2023/24 only. It is substantively unchanged from the 2022/23 guidance except for the updating of the section on Subsidy Control. The guidance does not replace existing legislation.
3. Enquiries on this measure should be addressed to: ndr@levellingup.gov.uk
1. Introduction
4. In its Final Report of the Business Rates Review published in October 2021, the government announced a 100% relief for eligible low-carbon heat networks that have their own rates bill effective from 1 April 2023. In November 2021 a technical consultation provided details of how the relief will be targeted at hereditaments being used wholly or mainly as a heat network which have their own rating assessment. The relief will be for those networks generating from a low carbon source to ensure the policy supports decarbonisation.
5. At the Spring Statement 2022, the Chancellor announced that the heat network relief will apply from 1 April 2022. For the financial year 2022/23, this relief has been delivered using existing local government discretionary relief powers funded by the government. This approach will be continued, with the relief to be provided through those discretionary relief powers in the financial year 2023/24. This guidance will, subject to reviewing the implementation of the guidance, inform regulations to be made to take effect as soon as Parliamentary time allows.
6. Heat networks take heat or cooling from a central source(s) and deliver it to a variety of different customers such as public buildings, shops, offices, hospitals, universities and homes. By supplying multiple buildings, they avoid the need for individual boilers or electric heaters in every building. Heat networks have the potential to reduce bills, support local regeneration and be a cost-effective way of reducing carbon emissions from heating.
7. Heat networks play an important role in decarbonising heat and support delivery of our net zero commitments. They are uniquely able to unlock otherwise inaccessible large-scale renewable and recovered heat sources such as waste heat and heat from rivers and mines.
2. How will heat network relief be provided in 2023/24?
8. As discussed above, the government intends to bring forward legislation to provide for a mandatory heat network relief as soon as Parliamentary time allows. Therefore, for 2023/24, the government will, in line with the eligibility criteria set out in this guidance, reimburse local authorities that use their discretionary relief powers under section 47 of the Local Government Finance Act 1988 (as amended), to grant heat network relief in respect of 2023/24.
9. It will be for individual local authorities, which administer the heat network relief, to adopt a local scheme and determine in each individual case when, having regard to this guidance, to grant relief under section 47.
10. Central government will reimburse billing authorities and major precepting authorities for the actual cost to them under the rates retention scheme of the heat network relief that falls within the definitions in this guidance.
11. Authorities will be reimbursed following the submission of outturn data in the National Non-Domestic Rates 3 (NNDR3) form for 2023/24.
3. Which properties will benefit from the relief?
12. In order to be eligible for Heat Network Relief the hereditament must be:
a. wholly or mainly used for the purposes of a heat network, and
b. the heat is over the next 12 months expected to be generated from a low carbon source (irrespective of whether that source is located on the hereditament or on a different hereditament).
13. We would anticipate the test at b above being made based on a forecast at the start of each financial year and local authorities are not required to revisit that forecast and review the relief retrospectively for the same year. Nevertheless, local authorities may still review the eligibility for relief mid-year if, for example, there are changes to the type of plant installed at the facility.
Wholly or mainly used for the purpose of a heat network
14. For these purposes, a heat network is a facility, such as a district heating scheme, which supplies thermal energy from a central source to consumers via a network of pipes for the purposes of space heating, space cooling or domestic hot water. Hereditaments wholly or mainly providing heat for a different purpose (such as an industrial process) are not eligible. The government will keep under review the incidence of heat networks in any industrial process context and whether they should benefit from the relief.
15. The test should be applied to the hereditament as a whole and heat network relief is not available on part of a hereditament. Many small and medium scale heat networks, such as common heating systems in multi-occupied buildings or estates, do not give rise to a separate business rates bill. In these cases, the heat network forms part of the services of the properties which have a wider purpose (e.g. offices) and therefore would not be eligible for Heat Network Relief. We expect those networks eligible for the relief to be the larger facilities which have their own business rates assessment[footnote 1].
16. The test is on thermal energy. This means that the purposes of generating electricity does not count towards meeting the wholly or mainly test and, as a result, the government does not anticipate hereditaments comprising power stations and a heat recovery and network system to qualify. A hereditament comprising a Combined Heat and Power (CHP) facility where the generation of electricity at the hereditament was more significant than the generation and supply of heat would not qualify for the relief. However, if a heat recovery and network system taking heat from a power station was, for whatever reason, in a separate hereditament from the power station then it may still qualify subject to meeting the other tests of eligibility.
17. Similar considerations will apply where the heat is being taken from an incinerator or Energy from Waste (EfW) Plant. If the heat network forms part of the same hereditament as the incinerator or EfW plant then, unless it has been designed specifically as a heat network, it is unlikely to pass the wholly or mainly test (its primary purpose more likely being incineration of waste or generation of power). However, it may qualify (subject to the other tests of eligibility) if the heat network forms its own hereditament (i.e. if the heat is coming in from a different hereditament such as the case of a heat network which purchases heat from a separately assessed EfW plant).
The heat is generated from a low carbon source
18. A low carbon source is a source of which at least:
a. 50% is renewable as defined below,
b. 50% is waste heat,
c. 75% is cogeneration heat (where cogeneration’ means the simultaneous generation in one process of thermal energy and electrical or mechanical energy), or
d. 75% is a combination of the sources above.
19. A renewable source is any of the sources listed in Class 1(e) of the Schedule to the Valuation for Rating (Plant and Machinery) (England) Regulations 2000 (SI 2000 No. 540) as inserted by regulation 2(b) of SI 2022 No. 405.
20. Waste heat includes heat or coolth unavoidably generated as a by-product of another process, which would be wasted if not used for the purposes of a district heating network. This may include heat generated through the incineration of waste (although as noted at paragraph 17 above hereditaments which are primarily for the purpose of the incineration of waste or generation of electricity from waste would not pass the first test in 12(a) above).
21. Combined Heat and Power (CHP) sources will qualify as sources of cogeneration heat including gas CHP. However, as noted in paragraph 16 above, a hereditament comprising a CHP facility would still have to meet the first test of the relief – that the hereditament was wholly or mainly used for the purposes of a heat network (and not for example wholly or mainly for the purpose of generating and selling electricity).
22. This definition is largely based on Article 2 of the Directive 2012/27/EU of the European Parliament and of the Council, is widely recognised and understood in the heat network sector and used for other purposes (such as the Heat Networks Investment Project (HNIP). Therefore, local authorities can expect the operators of potentially eligible heat networks to understand this definition and be able to declare and evidence whether they consider they meet the test of a low carbon source. For these purposes we would anticipate a much simpler declaration than the information provided as part of the HNIP application. Local authorities should seek such a declaration from the ratepayer to inform them as to whether they meet the low carbon test.
4. How much relief will be available?
23. Relief is available at 100% of the chargeable amount for the hereditament for any day on which the eligibility criteria are met. Therefore, for eligible hereditaments the rates liability will fall to nil from 1 April 2023.
24. As discussed above, Heat Network relief is not available on only part of the hereditament. If the eligibility criteria are met for the hereditament as a whole then full relief should be applied even if, for example, the hereditament contains some plant (such as a back-up boiler) which may not in isolation meet the low carbon tests. Equally, a hereditament which overall does not meet the eligibility criteria cannot receive partial relief on an individual item of plant which in isolation may have passed the tests.
5. Sequence of reliefs
25. The heat network relief should be applied after mandatory reliefs but before any other discretionary reliefs.
6. Subsidy control
26. The Heat Network relief is subject to the UK’s domestic and international subsidy control obligations. Businesses eligible for relief will need to fulfil any requirements in place to ensure compliance with those obligations in advance of, during, and after claiming relief. See the BEIS guidance for public authorities which contains guidance and information for the new UK subsidy control regime, which commenced on 4 January 2023.
7. Recalculations of reliefs
27. As with other reliefs, the amount of heat network relief awarded should be recalculated in the event of a change of circumstances. This could include, for example, a backdated change to the rateable value or to the hereditament. This change of circumstances could arise during the year in question or during a later year.
28. Under regulations made under section 47 of the Local Government Finance Act 1988 authorities must give at least 12 months’ notice of a revocation or variation of a rate relief scheme the effect of which would be to increase rate bills. Such a revocation or variation can only take effect at the end of a financial year (other than to comply with international agreements)[footnote 2]. But within these regulations, local authorities may still make decisions which are conditional upon eligibility criteria. If a change in circumstances renders a property ineligible, the relevant bill can be amended in the year to reflect the loss of the relief.
29. Therefore, when making an award for Heat Network Relief, local authorities should ensure in the conditions of the award that the relief are subject to the property’s continuing eligibility. If the use of the property changes so that it is no longer eligible, the relevant chargeable amount must be recalculated to reflect that fact.