Farmers urged to take business rates advice before diversifying

Not all activity will be exempt from rating because it is located on a farm

15 March 2018

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For a number of years farmers and landowners have been encouraged to diversify their businesses in order to improve income flow and boost profits. This has led many to invest in areas such as renewable energy from solar and wind power, as well as holiday accommodation, sport and recreation, racecourses and stables. Now the Central Association of Agricultural Valuers (CAAV) has warned that some of these endeavours could risk removing their land or buildings from the agricultural exemption of business rates, potentially leading to large, backdated tax bills.

Andrew West, Director of Rating at Cooke & Arkwright and Chris Hyde, Associate Director in the firm’s Land Agency explain further.

Mr West comments, “It should not be assumed that all activities on farms are necessarily agricultural in the rating context and you should not presume that an activity will be exempt from rating because it is located on a farm.

“There are a variety of strict tests which agricultural premises need to satisfy before exemption is appropriate, and it is a complex area. As a general guide, agricultural land is defined as arable, meadow or pasture ground, woodland, poultry farming (over 0.10 hectares), market gardens, nurseries, orchards and allotments, and land used solely or mainly in connection with agricultural production.

“However land put to a non-agricultural use is unlikely to qualify for any exemption. Because of the complexity, each category needs to be looked at in its own context.

“Many farmers have identified the opportunity to install alternative energy on their agricultural land, such as photo-voltaic panels or wind turbines. As long as the installation serves only the agricultural land or buildings where it is situated and is used by the occupier for agricultural purposes, then there is no rate liability, as the installation forms part of the existing agricultural exemption.

“However, if any of the energy is used for domestic or commercial purposes, then difficulties can arise.”

In Wales, almost 20% of electricity is now generated from renewable sources, led by wind but increasingly from solar power. Mr Hyde says that a growing number of Cooke & Arkwright’s land agency clients are deploying renewable energy installations including wind, solar and hydro power on their land, and the advice is for them to be cautious. “We have a client who installed frame-mounted photo voltaic panels in a fenced and gated field. The array was installed by, and is connected to, the National Grid, to which the electricity is exported. The Grid pays the farmer rent for his land. The installation is considered to form a separate hereditament to the farm and is not exempt from business rates. In this case, the Grid is the ratepayer, not the farmer.

“Another farmer who installed PV for his own agricultural use has been hit by business rates because not all the power is used on the farm. The excess is used to power his home and holiday cottages and this is deemed to be rateable because it is not wholly used in connection with agricultural buildings.

“Solar and wind are facing increases in business rates, but on a brighter note, the Welsh Government has now announced that hydro projects will be able to apply for a grant towards their 2018/19 rate liability, and retrospectively for 2017/18.

“We strongly advise clients to take professional advice from our rating team, so that they can factor in any potential business rate liability to their business plan before making a final decision on whether to diversify, expand or upgrade. If there is a potential cost impact from business rates, there may be steps they can take to mitigate this.”

Andrew West is a member of the RICS National Rating and Local Taxation Policy Panel advising the Westminster Government, the Welsh Ratepayer’s Forum, and a RICS Registered Valuer

Chris Hyde is a Fellow of the Central Association of Agricultural Valuer, a member of the RICS Rural Professional Group Board and a RICS Registered Valuer