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ESA investigates councils' VAT exemption

The Environmental Services Association (ESA) is investigating whether a value added tax (VAT) exemption for local authority commercial waste collections is causing a market distortion.

In 2011, HM Revenue and Customs (HMRC) enacted a rule which exempted council waste collections from VAT.

In December 2014, north-east firm Max Recycle launched a judicial review of the decision in an attempt to reverse the exemption. It claimed that market distortions are “self-evident” and that there is no legal regime on which to base the exemption.

HMRC has asked the association whether it can help to gather evidence which may demonstrate that a distortion is occurring in the market, according to ESA executive director Jacob Hayler.

Although HMRC has not formally commissioned any work from the ESA, it confirmed that it will take into account any information handed over about the exemption.

HMRC also said that it will keep the VAT treatment of council services under review, including an “ongoing dialogue with a range of bodies”.

The ESA is considering whether external economic consultants could be used to provide the evidence and analysis.

Hayler said Max Recycle’s legal challenge considers whether:

  • Local authority collections are operating under a “special legal regime”
  • Differential VAT rates are distorting competition in the market

Hayler said the ESA supports the claimant’s “special regime” claim. He added that, if unsuccessful, the market distortion principle also provides an opportunity for the VAT disparity to be removed.

The Local Authority Recycling Advisory Committee expressed concerns after Max Recycle said it was “very optimistic” of winning the judicial review.

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