Information on Sub-meters
Many members will have farms which have been merged leaving some farmyards to be repurposed or will have converted odd buildings into rural workshops and the like. It may be that such incremental developments have resulted in an accumulation of odd sub-meters or utility supplies that are charged on an ad hoc basis. In this article, Mike Buchanan from Cambusmore Estate intendeds to provide guidance on rationalising sub-meters and setting up protocols for billing. The focus will be on electricity but water, mains gas and LPG will be considered.
It might seem that if a corner of a farmyard is sub-let to a workshop tenant then a single new electricity meter will suffice. From my experience though I would recommend fitting at least a second meter to record the balance of consumption not used by the tenant. This provides the opportunity to compare the total incoming electricity with the total outgoing electricity. It may surprise you how often the two do not agree. New electric meters will conform to the MID standard which allows them to under-read by 3.5% or over-read by 2.5% so it is possible for the difference between incoming and outgoing figures to be 6%. Any more than this indicates one or more meter is out of spec unless there is a long cable run and the possibility of losses between the input and output points. If a farmyard is being redeveloped with the prospect of eventually having several tenants then thought should be given to installing several sub-meters from the outset. Ideally these should all be in the same location to make meter reading easier. Oh and sticking them at ground level or ceiling level is not a good idea either as I know all too well! Sub-meters (known as secondary meters in the legal guidance) do not need to be MID certified but if they are not then you have to agree in writing with the customer to use uncertified meters. A MID meter will have a MID marking starting with an M, then two digits for the year of manufacture and finally a 4 digit verifier code. Meters can be certified for 10-35 years so some older meters with spinning dials may still be in certification.
My advice on having multiple sub-meters to measure all the outgoing consumption applies even more so to water. It is quite likely that the Scottish Water meter may be at a public roadside hundreds of metres away from the end users. Being able to add up the total consumption at the point of use and comparing this with the amount supplied is an essential tool in being able to keep a track on leaks. In very long pipe runs it may be worth having a meter at a half-way point simply for this purpose. A modest leak running night and day will soon run up the bills. It can also be informative to have a pressure gauge somewhere in each system. Scottish Water have a nasty habit of adjusting their pressure reducing valves downwards to reduce leaks. If they turn a pressure down from 6 bar to 4 bar then the flow to a farm 50m higher than the supply point will stop completely. Hopefully you will not have to deal with officious water inspectors who can claim (correctly) that Scottish Water are only duty bound to deliver water at 1 bar.
Water meters need to be protected from frost and the standard is to install them in underground “boundary boxes” incorporating variable depth sleeves, an insulating foam pad and stop valves. Two, four or six way boundary boxes can be obtained which make the splitting up of supplies more convenient. Current practice requires every outgoing leg to have a non-return valve so contamination from say a field trough at the top of a hill cannot flow back into a workshop at the bottom of a hill if the supply is turned off. If existing setups do not include non-return valves this is a good reason in itself to consider upgrading metering.
You will probably pay for a utility in various chunks such as night and day electric units, FIT charges, CCL and quarterly or daily availability charges. You will probably want to charge tenants simply by the metered unit. A spreadsheet to add up all the costs and average them out to a single charge rate becomes essential. I use spreadsheets with a sheet for all the meter readings and rate calculations. I then have further sheets which calculate the charges and comprise the invoice for each customer. Some people may have clever bespoke software that can do this. An example of a simple sample MSExcel spreadsheet will be posted alongside this article in the SLE members area.
If electricity or mains gas (but not LPG) is being supplied to “domestic” customers including caravanners then there is a legal obligation to “pass through” the exact cost of the fuel without a markup. To do this you should keep a copy of your calculations to justify your charge rates. Unfortunately the legal advice I have received includes that if you benefit from a discount for paying on the nose by Direct Debit you also have to “pass through” this benefit to your domestic customers even if they do not pay you by Direct Debit. This seems unfair to me as I doubt many members are able to impose Direct Debits on their tenants. Many landlords will also choose to “pass through” costs to commercial tenants although leases may allow for markups or handling charges.
You may charge monthly for larger users, quarterly or even annually for small users. You may wish to align at least one payment point with your own financial year end. My suggestion is that if you enter into fixed term supply contracts you should try and align them with your charging cycle. Otherwise you may end up charging for whole years in which you have suffered a price increase part way through which will complicate life.
Some water supplies may include a domestic house such as an old farmhouse in addition to commercial uses. In such a case there should be a Scottish Water sub-meter to deduct the consumption in the house from the commercial supply. Instead the householder should pay for their water as an extra fixed sum on their Council Tax bill. This is quite often not set up properly and it is worth checking that households are only paying the appropriate additions for water (and sewage disposal) on their Council Tax bills. Many rural houses on private water supplies or private septic tanks should not be paying these charges at all. None of the Local Assessor, local council or Scottish Water will tell you who is paying for these services – you will have to ask each of the tenants to see their Council Tax bills.
As usual VAT complicates matters no end. Assuming your business is VAT registered, you will need to charge VAT on utility charges to tenants. Fuel supplies to most industries are standard rated at 20%. Domestic use, charitable non-business use and consumption below a threshold should be charged at the reduced rate of 5%. The threshold for electricity is 33kWh/day. Your charging protocol should include a test to see if the tenant qualifies for the standard or reduced rate in each charging period. This can lead to a curious situation for a farmyard with say four users all using 25kWh/day. The landlord will pay standard rate on the total 100kWh/day whilst each of the tenants should be charged only the reduced rate of 5%. The difference can be reclaimed via your VAT return so it makes no odds to most people except small unregistered traders who might benefit from the reduced rate.
The reduced VAT rate threshold for mains gas or piped LPG is 145kWh/day.
There is a further complication in that larger supplies of fuel will also attract a charge to Climate Change Levy (CCL) (which is itself chargeable to VAT!). The thresholds for incurring CCL are helpfully the same as the VAT thresholds. Everything is not quite rosy in the garden though because if you are a larger customer and incur CCL how do you pass this on to tenants who might not otherwise be liable to pay it. I don’t think the legislators thought of this nuance. As far as I know it is reasonable and legal to pass on this cost as part of the cost of the fuel, pre-VAT, in all cases.
If your supplier itemises a “FiT” charge on your bills simply treat this as an extra cost for each unit. Some suppliers like to show this separately as a way of blaming the Feed in Tariff for having inflated your bill.
VAT on water is of course different! Who makes this up? Most supplies of water are standard rated for VAT. The official list refers to 1980 industrial classifications:
Division 1 Energy and water supply industries
Division 2 Extraction of minerals and ores other than fuels; manufacture of metals, mineral products and chemicals
Division 3 Metal goods, engineering and vehicles industries
Division 4 Other manufacturing industries
Division 5 Construction
This list may seem fairly specific but actually Division 4 “Other” includes a host of activities including food manufacture and distilling and so many business users should be paying standard rated VAT on water. Some exceptions include agriculture, wholesaling, retailing, vehicle repairing, catering and of course “domestic” use. These groups are lucky enough to incur zero rating for water use. If you are not sure about an industry sector, beware that if you look up a modern Standard Industrial Classification (SIC) it will be a five digit code within lettered Sections whilst the VAT rule refers to the 1980 classifications which had four digit codes in numbered Divisions! As far as I know the new Sections B-F equate to the old Divisions 1-5. For reasons that escape me money lenders also get away with VAT free water. You couldn’t make it up if you tried. The consequence of this is that some tenants will need to be charged VAT at 20% and others at 0% on their water. If their consumption is small the simplest solution may be not to charge them at all (though I would still fit meters to check for increasing use or leaks).
Modern water meters will have a serial number starting with a two digit number indicating the year of manufacture preceding the letter M and followed by a further 6 digits. Whilst some are installed directly in the line of the pipe it is handier to have 1½” Concentric Meters which screw into a fixed housing and can be replaced more readily. They can also be replaced by full flow or no flow plugs. You can even buy an extender so the meter is raised nearer ground level instead of deep in a hole where it may be difficult to read or even underwater. Remember that all underground water supplies up to the stop valve in each location must be installed by an “approved groundworker” or more highly qualified plumber. Large estates and in particular caravan parks may find it worth training up a handyman as an “approved groundworker”.
The charges that your supplier makes to you also need consideration. If you can justify that over 60% of your electricity consumption is used domestically (as is likely on a caravan park) then you can self-certify this and ask for your entire bill to be reduced rated for VAT. This may make no odds at the end of the day for VAT but it will get you out of paying the CCL. You may be asked to self-certify that your water use should be zero rated. If your water is all used agriculturally or in other qualifying businesses this should be straightforward but it will get complicated if you have mixed uses. The whole field of mixed uses is something for specialist advice and probably best avoided. Some ex-farmyards may still be enjoying zero rated water when this is no longer strictly correct. Hopefully no-one will come after you if a non-qualifying user is making cups of tea and flushing the toilet occasionally whilst a hundred cows are drinking water at the other end of the steading.