Legitimate landfill operators be warned: you may be liable for a hefty tax bill if you have inadvertently exceeded your environmental permits at any point since 1996.
Legislative measures to apply landfill tax on waste at illegal sites came into force on 1 April. This was in response to an increasing waste crime problem across the UK. But legal experts warn that the waste sector may be caught unawares over the rules, which can be applied retrospectively to illegal sites.
In a series of clauses under the Finance Act 2018 that have not received much, if any, publicity, HM Revenue & Customs (HMRC) has confirmed that any material considered to be ‘disposal’ dumped at an unauthorised site since 1996 will potentially be liable for charges under landfill tax.
Jonathon Bell, a solicitor at Dyne Solicitors, said the retrospective measures were clearly laid out in the Act: “It has been fairly well reported about the landfill tax, but nobody is mentioning this retrospective power. No-one seems to have noticed this thing, which is tucked away.”
Bell said that although the legislation was designed to deter waste criminals, there was nothing to stop HMRC going after legitimate operators that inadvertently fall foul of the rules.
“An example of where this could go terribly wrong is for exemptions to use waste material for construction purposes. There is a U1 exemption for a certain type of soil and stone for, usually, 1,000 tonnes. If someone made an honest mistake of thinking it was 10,000 tonnes and had done so any time since 1996, HMRC can get its calculator out and consider it 9,000 tonnes of taxable illegal deposit.”
Bell, who issued a freedom of information request to HMRC to confirm the meaning of the retrospective clauses in the Act, highlighted a demand from the tax office that operators of illegal sites should declare any taxable materials by 30 April.
In response to a Freedom of Information request by Bell, the EA said: “The EA maintain a database of illegal waste sites and have issued the flyer to those sites that meet HMRC’s definition of an unauthorised site. These are any sites or areas of land that should have authorisation from either the EA or the Northern Ireland Environment Agency but do not.
“The purpose of the flyer is to give persons liable to pay tax on disposals made before 1 April 2018 the opportunity to comply with the requirements by 30 April 2018 and avoid a penalty.
“From this point onwards, HMRC will work with the EA to identify those sites that continue to fail to comply, and pursue the charge to tax and wrongdoing penalties.”
An HMRC leaflet has been sent to illegal waste sites for which the Environment Agency (EA) has the details on a database. Operators found not to comply with the declaration could face penalties. But Bell questioned the effectiveness of the leaflet.
Laura Tainsh, a partner at Davidson Chalmers, said she was “surprised” that HMRC had chosen to apply the legislation retrospectively and that the sector did not seem to be examining the possible effect of the rules.
She added: “Perhaps this is a good thing from a criminality perspective. HMRC could make a big play of it and get people on the hook for significant sums relating to illegal disposals. That is something which the industry in England would welcome.
“The risk for legitimate business is there, but it would be difficult to police and accurately calculate retrospectively unless the EA has information on specific instances of ‘unauthorised’ disposal.”
Scotland has had the ability to apply landfill tax on unauthorised sites for a number of years but has yet to take any action.
Biffa has lost a £63m case against HMRC, fought over whether shredded household waste used as a protective layer in landfill sites is liable to tax. The company is understood to intend to appeal. It had argued that, since the shredded waste formed a barrier to help seal in other material, it was in use and was therefore not liable to landfill tax.
The First-Tier Tribunal Tax Chamber heard the case on 11 April. This followed a 2016 case which upheld a 2014 HMRC ruling that black bag waste known as ‘fluff’ used to line landfill cells was discarded material and so liable to landfill tax.
Giving judgment, Judge Kevin Poole said the case concerned material deposited in Biffa’s landfill cells above the main body of waste and below the capping liner, which was shredded “but which was otherwise essentially the same as the ‘fluff’.”
Biffa’s appeal was for £63m it paid in 2016 relating to work at 22 sites between 2010-12.