Upper Tribunal cuts business rates on anaerobic digester plants in Bay Farm Power v Prescott

The Upper Tribunal (Lands Chamber) has reduced the rateable values of two anaerobic digester plants in East Anglia, finding that the Valuation Office Agency's standard approach to apportioning the divisible balance under the receipts and expenditure method failed to account adequately for working capital and the particular risks of the sector.

In Bay Farm Power Ltd v Bob Prescott (Valuation Officer) [2026] UKUT 238 (LC), Martin Rodger KC, Deputy Chamber President, sitting with Mrs Diane Martin MRICS FAAV, heard test case appeals concerning the 2017 rating list valuation of a gas to grid plant at Bay Farm, Suffolk, and an electrical anaerobic digestion plant at Oak Grove, Norfolk. The Valuation Tribunal for England had previously confirmed Bay Farm's rateable value at £285,000 while reducing Oak Grove's to £140,000.

Both parties agreed that the receipts and expenditure basis was the appropriate valuation method, and the divisible balance figures were not in dispute. The contested issue was how to apportion that balance between the hypothetical landlord and tenant, specifically the calculation of the tenant's share representing a reasonable return on capital, reward for effort, and compensation for risk. The valuation officer favoured expressing the tenant's share as a percentage of the divisible balance, calculated by reference to the ratio of rateable to non-rateable capital assets under the Valuation for Rating (Plant and Machinery) (England) Regulations 2000, with a standard 10 per cent uplift for risk applied consistently across the renewable energy sector. The appellants' expert preferred basing the tenant's share on a percentage return on the tenant's actual capital employed.

The Tribunal rejected the valuation officer's argument that a Memorandum of Agreement reached in 2021 between the agency and AD sector ratepayers had established a binding consensus on methodology, finding the document's wording ambiguous and noting that, regardless of its proper construction, neither party suggested the Tribunal was bound by it. The Tribunal was similarly unpersuaded by the suggestion that a sector-wide "tone" existed supporting the agency's preferred methodology, observing that the concept of tone could not properly be applied to a valuation technique rather than to actual values achieved in the market.

Citing Lord Millett's analysis in Hong Kong Electric Co Ltd v Commissioner of Rating and Valuation, the Tribunal confirmed that the receipts and expenditure method remains an aid to valuation rather than a rigid formula, and that consistently anomalous results, such as those frequently produced by the agency's existing model once capped or collared, called its reliability into question. The Tribunal found that both experts' primary approaches contained flaws, with the valuation officer's method omitting any allowance for the tenant's working capital and the appellants' return on capital method producing an implausible negative rateable value for Oak Grove.

Adopting a percentage of divisible balance approach but incorporating working capital into the tenant's notional contribution, and applying a 15 per cent risk adjustment reflecting the particular commercial and operational uncertainties facing anaerobic digestion operators at the relevant valuation date, the Tribunal arrived at revised figures. The rateable value of the Bay Farm gas to grid plant was reduced to £270,000 with effect from 9 April 2021, while Oak Grove's rateable value was reduced to £129,000 with effect from 1 April 2017.