Rating Manual section 6: valuation practice

Part 5: practice note 2 - the valuation for rating (plant and machinery) microgeneration regulations England and Wales

The Valuation Office Agency's (VOA) technical manual for the rating of business (non-domestic) property.

This Practice Note covers the application of relief to certain plant and machinery having microgeneration capacity. The relief, when it applies, is given in respect of all qualifying plant and machinery, it is not restricted simply to ‘power’ items within Class 1. Strict time limits apply to eligibility for relief as set out in the following notes.

The regulations came into force in England on 1st October 2008 and in Wales on 1st April 2010.

England

1. Introduction

1.1 General

This practice note is concerned with, and expands on, The Valuation for Rating (Plant and Machinery) (England) Regulations 2008 SI 2008 No.2332, which provides for a temporary exclusion from a hereditament’s value of relevant plant and machinery with “microgeneration capacity”.

The Regulations came into force on the 1 October 2008 and currently apply to England only. At the moment there is no comparable legislation applying to Wales.

1.2 Rating lists

Power plant

Specified plant and machinery in Class 1 The Valuation for Rating (Plant and Machinery) (England) Regulations 2000 and its table (see Practice Note 1) which provides power in or on the hereditament, including boilers, turbines, storage batteries, wind turbines, solar cells and solar panels, are generally rateable plant.

However, a substantial exception has been made where the power is mainly or exclusively for distribution for sale to consumers (Class 1(d)) e.g. at a stand alone power station whether coal, gas or nuclear powered.

2001 regulations

In 2001 the ‘exception’ was extended to so called ‘good quality’ combined heat and power station where the electrical power was not mainly or exclusively for distribution for sale to consumers but was instead, together with the heat produced, used within the property. (See Practice Note 3 Commentary).

Many large factories generate their own electrical power and utilise the heat within their operations and until the 2001 Regulations came into force would not have had the benefit of the exception. The exception however only applies to ‘good quality’ systems that generate both heat and power. A factory with a system that only produces power or was not classified as ‘good quality’ would not enjoy the exception.

‘Good quality’ combined heat and power systems are defined in para’s 148(2) or 148(3) of Schedule 6 to the Finance Act 2000 as those CHP stations where there is in force a certificate, given by the Secretary of State, stating that CHP station is fully or partly exempt for the purposes of the Climate Change Levy charged under the act.

Unlike the original Class 1(d) “ excepted plant and machinery ” paragraph contained within the Schedule to SI 2000 No.540, which applied to all plant in Class 1 Table 1, and which has now been replicated in paragraph Class 1(d)(i) of the 2001 Regulations, in respect of ‘certified’ CHP stations, only the items found in Class 1 Table 1 (b), (c), (d) or (k), and where the power is at least in part electrical power is excepted.

In no cases will the whole CHP plant be exempt, only those items under Class 1 Table 1 (b), (c), (d) or (k). The building and all other plant on the CHP station will be rateable. A CHP plant may form a small part of a large hereditament, and such plants can now be found in all types of hereditament.

2. The 2008 regulations

2.1 Microgeneration

The Government was concerned that the imposition of higher rates would not act as a disincentive to companies to investing in micro generation.

The 2008 Regulations therefore inserts a new regulation 2A in The Valuation for Rating (Plant and Machinery) (England) Regulations 2000 and applies to any plant and machinery installed on or after 1 October 2008 which has “ microgeneration capacity ”. From the day it is installed until the next revaluation, or, if earlier, the day it ceases to have microgeneration capacity, the P and M is assumed to be part of the hereditament except to the extent that it has microgeneration capacity.

In practice this means any value attributable to its microgeneration capacity is ignored until the next revaluation (or when the capacity ceases if earlier). So in the simple example of the affixing of a small wind turbine or solar panel to the roof of a shop or factory on or after 1 October 2008 any value in the P and M is ignored during the current rating list. From 1 April 2010 it will however be rated conventionally. If however the P and M is installed on or after 1 April 2010 then this will be excepted until 1 April 2015. Items installed prior to 1 October 2008 will be rated conventionally.

The regulation only refers to the extent that it has microgeneration capacity it does not therefore mean the presence of the P and M is ignored if it has some other function e.g. photovoltaic tiles forming a roof or wall covering and having the additional function of keeping the building watertight.

Microgeneration capacity includes P and M for both the generation of electricity and the production of heat providing the source of energy or the technology is mentioned in section 26 of the Climate Change and Sustainable Energy Act 2006. These are defined by both being named and having a capacity that does not exceed specified figures.

These are:

Source/technology

Biomass, bio fuels, fuel cells, photovolyaics, water (including waves and tides), wind, solar power, geothermal sources, combined heat and power systems and other sources and technologies specified by the Secretary if State.

Capacity

Generation of electricity - 50 kilowatts Production of heat - 45 Kilowatts thermal

The tests apply to each separate item of P and M, and generally speaking the capacities are for fairly small units of P and M which are usually installed to supplement the principal source of energy (whether electrical or heat) enjoyed by a hereditament. It should however be noted that the unit for CHP is the system, and a system with the capacity to generate electricity up to 50 KW and produce heat up to 45 KW thermal would be able to provide heat and provide power to a reasonably sized building.

Because the regulations only refer to the extent it has microgeneration capacity it does not mean the presence of the combined heat and power plant is ignored. If the combined system is the only heating system in the building, the building should not be valued as if it was unheated but an allowance made to reflect the exclusion from value of the microgeneration capacity. The question to be asked is therefore how much less valuable is the hereditament because it does not have this capacity? In effect the property is to be valued at whatever lower rental it would achieve if it was the tenant who would need to install necessary heat source P and M.

3. The English regulations

The Valuation for Rating (Plant and Machinery) (England) (Amendment) Regulations 2008

Wales

4. Introduction

4.1 Overview

This practice note is concerned with, and expands on, The Valuation for Rating (Plant and Machinery) (Wales) Regulations 2010 SI 2010 No.146 (W.21), which provides for a temporary exclusion from a hereditament’s value of relevant plant and machinery with “microgeneration capacity”.

The Regulations came into force on the 1 April 2010.

4.2 2010 rating lists

Power plant: general background

Plant used or intended to be used for the generation, storage, primary transformation or main transmission of power in or on the hereditament will generally be rateable in Class 1 of the P & M regulations for Wales. (The Valuation for Rating (Plant and Machinery) (Wales) Regulations 2000) Specified plant and machinery in Class 1 and its table (see Practice Note 1: which relates to England but is of equal application to Wales) which provides power in or on the hereditament, including boilers, turbines, storage batteries, wind turbines, solar cells and solar panels, are generally such rateable plant.

The Class 1 (d) exception: Power Sold to Consumers

A substantial exception in the 2000 regulations is provided in respect of plant and machinery used or intended to be used mainly or exclusively for generation, storage, transformation or transmission of power for sale to consumers (Class 1(d)). This will generally apply to hereditaments which are in themselves power generating hereditaments, eg. Power stations.

The 2001 Regulations (SI 2001 No.2357 (W195)): Combined Heat & Power

In 2001 the ‘exception’ was extended to ‘good quality’ combined heat and power stations where the electrical power was not mainly or exclusively for distribution for sale to consumers but was instead, together with the heat produced, used within the property. (See Practice Note 3 Commentary equally applicable in England and Wales).

Many large factories generate their own electrical power and utilise the heat within their operations and until the 2001 Regulations came into force would not have had the benefit of the Class 1 (d) exception. The exception however only applies to ‘good quality’ systems that generate both heat and at least in part, electrical power. A factory with a system that only produces power or is not classified as ‘good quality’ will not enjoy the exception.

5. The 2010 regulations

The Valuation for Rating (Plant and Machinery) (Wales) Regulations 2010 SI 2010 No.146 (W.21)

5.1 Microgeneration

The Welsh Assembly Government was concerned that the imposition of higher rates should not act as a disincentive to companies to investing in micro generation, there was also a desire to ensure harmonisation with England.

The 2010 Regulations therefore insert a new regulation 2A in The Valuation for Rating (Plant and Machinery) (Wales) Regulations 2000 and it applies to any plant and machinery installed on or after 1 April 2010 which has “ microgeneration capacity ”. From the day it is installed until the next revaluation, or, if earlier, the day it ceases to have microgeneration capacity, the P and M is assumed to be part of the hereditament except to the extent that it has microgeneration capacity.

In practice this means any value attributable to its microgeneration capacity is ignored until the next revaluation (or when the capacity ceases if earlier). So in the simple example of the affixing of a small wind turbine or solar panel to the roof of a shop or factory on or after 1 April 2010 any value in the P and M is ignored during the life of the current rating list. From 1 April 2015 it will however be rated conventionally.

Items installed prior to 1 April 2010 will be rated conventionally. The exception will apply to all of the microgeneration plant forming the installation, not just that which would otherwise fall within Class 1 of the regulations.

The regulation only refers to the extent that it has microgeneration capacity it does not therefore mean the presence of the P and M is ignored if it has some other function e.g. photovoltaic tiles forming a roof or wall covering and having the additional function of keeping the building watertight.

Microgeneration capacity includes P and M for both the generation of electricity and the production of heat providing the source of energy or the technology is mentioned in section 26 of the Climate Change and Sustainable Energy Act 2006. These are defined by both being named and having a capacity that does not exceed specified figures.

These are:

Source/technology

Biomass, bio fuels, fuel cells, photovolyaics, water (including waves and tides), wind, solar power, geothermal sources, combined heat and power systems and other sources and technologies specified by the Secretary if State.

Capacity

Generation of electricity - 50 kilowatts Production of heat - 45 Kilowatts thermal

The tests apply to each separate item of P and M, and generally speaking the capacities are for fairly small units of P and M which are usually installed to supplement the principal source of energy (whether electrical or heat) enjoyed by a hereditament.

It should however be noted that the unit for CHP is the system, and a system with the capacity to generate electricity up to 50 KW and produce heat up to 45 KW thermal would be able to provide heat and provide power to a reasonably sized building.

Because the regulations only refer to the extent it has microgeneration capacity it does not mean the presence of the combined heat and power plant is ignored. If the combined system is the only heating system in the building, the building should not be valued as if it was unheated but an allowance made to reflect the exclusion from value of the microgeneration capacity. The question to be asked is therefore how much less valuable is the hereditament because it does not have this capacity? In effect the property is to be valued at whatever lower rental it would achieve if it was the tenant who would need to install the necessary heat source P and M.