Businesses with solar rooftop installations are being warned to expect an increase in business rates taxes of up to eight times the current levels as of April 2017 following a re-evaluation of how these assets are valued.
According to the Solar Trade Association (STA), the change is coming due to a wider review of business rates undertaken by HM Revenue and Customs’ Valuation Office Agency (VOA) which takes place every five to seven years and will affect both new and existing installations.
The VOA applies a specific methodology to calculating the rateable value for solar PV, which the STA has said is being based on capital costs of installation only. This is then multiplied by a factor of 0.4 to gain the amount a company has to pay each year.
Solar PV has seen both costs and subsidies drop significantly over the past five years and the STA is concerned that this will not be reflected by the new rates. It has estimated that rateable value for solar will increase from £8kWp to anywhere between £48.40-61.60kWp.
This means a company currently paying around £320 for a 100kW system could see its tax rise to almost £2,500 for the same installation in a retroactive action which could further damage the economic viability of rooftop solar following cuts to government subsidy enacted earlier this year.
Paul Barwell, chief executive of the STA, said: “This is a huge increase in the running costs of a rooftop solar installation that will affect both existing and new projects. In some cases, it would actually send installations into negative returns: you would be spending more on the system in tax and maintenance than you would be getting back from the sale of the power and the Feed-in Tariff support.
“We therefore need ministers to step in as soon as possible. The system needs to recognise that solar is a unique technology with both costs and revenues having come down over the last five years. This has created a complete mis-fit with the business rates system that needs to be fixed, or else we will face a prohibitive tax hike in this sector.”
The change will only apply to self-owned installations while third party owned systems, such as those included in power purchase agreements, and solar farms will be unaffected. However, a number of large scale businesses, public authorities, universities and other commercial institutions could be hit unless ministers intervene.
The STA is calling for self-owned rooftop solar installations to be exempt from business rates in the same way that Combined Heat and Power (CHP) and micro-generation systems under 50kW are. The association believes that the tax hike is an unintentional consequence of the current business tax regime which is in need of updating.
Speaking to Clean Energy News this morning, a spokesperson for the association said: “We don’t think this is an intentional tax grab by the Treasury trying to get money from renewables. It’s actually a completely accidental application of quite an archaic and complex business rates system that was really designed as a tax on property and the way it’s applied to solar just leads to this freak outcome of ridiculously high business rates on solar systems.”
The association has been in “intense negotiations” with the VOA over the last two months, as well as several government departments included HM Treasury, Department for Communities and Local Government and Department for Energy and Climate Change. The association also met privately with Conservative leadership hopeful and current energy minister Andrea Leadsom last week to discuss the issue.
The VOA was unavailable to comment on the review at the time of publication, but is due to release a draft rateable value and summary valuation on 30 September 2016.
