Rating Manual - Volume 4 - Section 3 - Practice Note 1 : 2010 : Plant and Machinery

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Practice Note 1: 2010: The Valuation for Rating (Plant and Machinery) (Wales) (Amendment) Regulations 2010

1. Introduction

1.1 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 and are set out in full within Appendix A to this practice note.

1.2 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 3: 2005 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 2000 : 2001 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.

2. The 2010 Regulations

2.1 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.

Explanatory memorandum to

The valuation for rating (plant and machinery) (wales) (amendment) regulations 2010.

  • This Explanatory Memorandum has been prepared by the Local Government Finance Division and is laid before the National Assembly for Wales in accordance with Standing Order 24.1.
  • Purpose of Instrument

These Regulations amend the Valuation for Rating (Plant and Machinery) (Wales) Regulations 2000 (“the 2000 Regulations”) by inserting a new regulation 2A.

The new provision applies to any plant and machinery installed on or after 1 April 2010 and has effect between the date of installation and the date of the first five-yearly compilation of rating lists of non-domestic hereditaments thereafter. The purpose of the amendment is to provide that ratepayers who install plant and machinery with the capacity to generate amounts of electricity or heat below certain thresholds (“microgeneration capacity”) will not see any increase in their rates bills as a consequence until the next five-yearly revaluation.

  • Matters of special interest to the Subordinate Legislation Committee

None.

  • Legislative Background

Regulation 2 of the 2000 Regulations provides that the classes of plant and machinery listed in the Schedule to the Regulations are to be treated as being part of a non-domestic hereditament and therefore relevant to its value for the purposes of rates. Any other plant and machinery present at the hereditament is not relevant to its value.

New regulation 2A will apply to valuations for days on or after 1 April 2010 and has broadly the same effect. However, it also provides that where plant and machinery which is otherwise relevant to a hereditament’s value has microgeneration capacity, that capacity is not relevant to the value. The definition of “microgeneration capacity” for these purposes is based on the definition in section 26 of the Climate Change and Sustainable Energy Act 2006

Section 143(2) of, and paragraph 2(8) of Schedule 6 to, the Local Government Finance Act 1988 gives the Secretary of State the power to make regulations providing that prescribed assumptions as to a hereditament are to be made, for the purpose of valuation for non-domestic rating.

These powers were transferred to the National Assembly for Wales by the National Assembly for Wales (Transfer of Functions) Order 1999, and by virtue of paragraph 30 of Schedule 11 to the Government of Wales Act 2006 these powers are now vested in the Welsh Ministers.

The Regulations will follow the negative procedure.

  • Policy Background

Micro generators, as defined by the Climate Change and Sustainable Energy Act 2006 are generally considered to be a sustainable method of energy production, but their installation may increase the rateable value of properties at the time of installation, thereby increasing in the amount of rates paid by the occupier or owner. This is because, although all non-domestic properties are revalued every five years, in between revaluations, valuation officers are responsible for maintaining an up do date list of the rateable values of non-domestic properties.

This instrument replicates in Wales the Valuation for Rating (Plant and Machinery) (England) (Amendment) Regulations 2008 SI 2332 – 2008, made in England last year, which provide that where plant and machinery which is assumed to be part of a non-domestic property has microgeneration capacity, that capacity will not affect the rateable value. This will continue until the first revaluation of properties for the purposes of compiling new rating lists after the plant and machinery is installed, and will ensure that properties installing this equipment in Wales are valued in the same way as those in England.

The effect of this will be that ratepayers who install this equipment between the 5-yearly statutory revaluations will not have increased rates bills as a consequence of installing this equipment until the revaluation following their installation, thereby in the short term removing a possible financial disincentive to the installation of this equipment.

  • Implementation

If this legislation is not made, business premises in Wales that install plant and machinery with microgeneration capacity may have their valuation amended to take into account any consequential additional value from the date of the installation, and so their non domestic rates liability could increase from that day instead of deferring it until the subsequent statutory 5-yearly revaluation..

  • Consultation

The draft regulations were published for consultation between 28 September and 20 November 2009. Three responses were received – none were opposed to the draft regulations, Bridgend County Borough Council supported them, the Royal Institute of Chartered Surveyors and the renewable Energy Association supported them, but wanted them to go further, for example by permanently discounting any value that these installations add to rateable values, and making similar provision for other types of sustainable energy provision. These suggestions were not adopted, as the Assembly Government would have to fund any changes that are more generous than those being made in England, and any additional changes would be complex to make, would require an evaluation as to their feasibility and impact, and would therefore have delayed the making of the proposed regulations.

  • Regulatory Impact Assessment

A regulatory impact assessment has not been produced for this instrument as no impact on the business, public or voluntary sectors is foreseen.

Welsh Statutory Instruments.

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