Philip Eagle, tax director at Stockport-based accountancy Hallidays, outlines how companies with solar panels could be impacted by recent changes to business rates – and what the solutions could be.
For users of rooftop solar panels, there are winners and losers with the revised revaluation of commercial properties which apply from 1 April 2017.
Every five to seven years the Valuation Office Agency (VOA) revises business rates (the tax charged on non-domestic properties and business assets) to reflect how values have changed since the last revaluation. The last revaluation was in 2010 based on values pegged to April 2008, and this recent revaluation is based on values in 2015.
The new methodology adopted by the VOA means that the owners of solar panels are split into two classes: those who mainly export their power; and those who use the majority of power on the site they occupy.
Winners and losers
The winners are those that mainly export their power to the grid or via a power purchase agreement (PPA). Most are likely to see a reduction in their business rates, which reflects the falling costs and lower rates of subsidy.
The losers could be those who use the majority of power they generate. Under the new legislation, their solar cells and panels will be considered rateable as plant and machinery. The value gained from installing solar is treated as an addition to the value of the whole property, which means that the rateable value increases and so do the business rates payable.
One possible solution is to operate the solar installation through a special purpose vehicle (SPV), possibly a separate company, or even a limited liability partnership.
In this way the SPV is treated as a separate legal entity providing the power generated to a third party. Such a change requires careful consideration and is not a solution in all cases but warrants consideration where the rate increase is significant.