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Operators say lower landfill tax rate drives abuse

Landfill sites

Most waste managers think the lower landfill tax rate allows for ”wilful misclassification”, a survey has found, while HM Revenue & Customs has decided to scrap its list of exemptions.

In 2015, the loss on ignition (LOI) testing regulation came into force as part of the Landfill Tax (Qualifying Fines) Order 2015, allowing operators to avoid paying the full landfill tax rate for materials that pass the test.

A transition period whereby a 15% threshold had to be achieved ended in April, and a 10% maximum must now be achieved to qualify for the lower £2.65 rate.

Waste separation firm Impact Air Systems surveyed 51 operators and found eight in 10 had paid more in landfill tax since the LOI regulations were introduced. Six in 10 respondents agreed with a comment suggested by MRW that the lower tax rate “allows for wilful misclassification”.

Since the regulations were introduced, seven in 10 companies had invested in new processing equipment such as density separation, additional screening and detailed reviews of waste streams.

The survey also found 62% wanted clearer information about the new tax threshold for waste fines, to enable them to pay the right amount and look at other ways to reduce their tax liability.

Impact managing director Nick Ball said: “Customers were previously able to dispose of their fines either as coverage or via other outlets at the lower landfill tax, however since the testing came into force, the above 10% LOI results have made the material subject to full HMRC duty.

“Because now their fines are being tested/monitored, the waste operators that are not doing anything to further separate their fines, are paying the higher tax bracket due to the high calorific content of their waste.”

The company plans to share its findings with the Government officials responsible for providing guidance for LOI testing and regulations.

Meanwhile, HMRC has published updated guidance on materials that are exempt from paying the tax.

In 2008, the Court of Appeal ruled to the effect that material received on a landfill site which was put to use on the site was not taxable.

Legislative changes introduced in the Landfill Tax (Prescribed Site Activities Order) 2009 brought certain activities at a landfill site back into the scope of the tax.

HMRC ran a consultation this year to address uncertainty it said had been created by some landfill operators “pushing the boundaries of the legislation”.

It will now repeal the legislation and introduce amendments to the Finance Act 1996 and Landfill Tax Regulations 1996. These amendments will come into force as part of its finance bill next year following an eight-week technical consultation on the changes running until the end of January.

With the list of exemptions removed, HMRC says in its consultation response the proposed legislation states:

  • there is an exemption for material deposited outside of the landfill cell (subject to retaining a charge to tax materials within the current scope, and materials that should be deposited in the landfill cell)
  • there is an exemption for the drainage layer and any pipes etc. inserted into the landfill cell for the purposes of extracting surplus liquid or gas

HMRC says: “These changes will significantly reduce the number of exemptions needed, and remove the need for some of the terminology that respondents felt was unclear.”

  • Nick Ball comment updated on 12 December

Readers' comments (1)

  • Rather than tinkering with legislation we need a complete overhaul of the landfill tax exemption/qualifying materials issue. The gap between the two tax rates will always drive avoidance. Is it time for a three-tier system as many have suggested?

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