The Local Authority Recycling Advisory Committee (Larac) has reacted with alarm after north east firm Max Recycle said it was “very optimistic” of winning a judicial review that would overturn the VAT exemption for council trade waste collections.
In 2011 HM Revenue and Customs (HMRC) enacted rules that exempted VAT payments for local authority’s commercial waste collection services.
The Environmental Services Association (ESA) has so far been unsuccessful in campaigning against the move on the basis it distorts the commercial waste market.
But in early December North East firm Max Recycle launched a judicial review of HMRC’s decision in an attempt to reverse the exemption. HMRC has been given until 7 January to respond.
Managing director Scott Hawthorne told MRW he was “very optimistic” of proving his case which argues that market distortions are “self-evident” and that there is no legal regime on which to base an exemption.
HMRC told Max Recycle that local authorities have a legal duty to collect commercial waste, according to the Environmental Protection Act.
But Hawthorne said: “That actually says ‘a duty to arrange for the collection’. If you arrange for your car to be serviced, you’re not a mechanic.”
Hawthorne added he was “very optimistic” of proving the case. “We have definitely noticed councils’ advantage. It’s twofold – we’ve lost customers as a result and we’ve failed to win customers as a result. Customers have sone so far as to sign up with the paperwork, and they then say ‘hang on a minute, the local authority doesn’t charge VAT, I now don’t want to proceed’.
“The only people putting up a fight, it seems, are HMRC on the grounds of looking at the entire waste arisings for the commercial waste market.
“What they’re failing to comprehend is, it only affects wheelie bin collection market on the high street when you’re competing with a local authority. It doesn’t affect the skip market or the asbestos market, but they’re using all those waste arisings to try and water down the significance of the distortion.”
If successful, Max Recycle could be in line for a damages payment to compensate for lost business incurred during the exemption. The unpaid VAT during the period would also have to be met, either by local authorities directly or levied from the businesses that were not initially charged.
Larac said the judicial review was “unwelcome and could have dire consequences for thousands of small businesses”.
Demands for back-dated VAT from local authorities when their budgets are again being cut could meant that household recycling would suffer, it said, adding that small businesses in rural and remote areas where private firms do not operate could also face increased costs.
Larac chair Andrew Bird said “Any income stream that a local authority can establish is a valuable one in the funding climate we are in.
“I am worried that if this review were successful local authorities might stop some trade collection services which would mean less, not more competition. Price, whilst important, is only one way in which services are marketed and private waste companies usually have the benefit of economies of scale to offset the small benefit local authorities may gain from the VAT situation.”
But Larac also acknowledged the VAT difference could be seen as an unfair advantage.
ESA economist Jacob Hayler said: “We understand and have some sympathy with Larac’s concerns about the impact a back-dated VAT bill could have on local authorities.
“The key issue for ESA though is the establishment of a level playing field so that private operators can compete in the commercial waste market on a fair and equal basis.”