Landfill tax is a tax charged on waste deposited in landfill, or waste which has been deposited at unauthorised sites which should have a permit.
It is a devolved tax, so there are separate regimes in England & Northern Ireland, Wales, and Scotland each with separate tax authorities.
There are two rates of tax, the lower rate which is currently £3.25 per tonne and standard rate which is £102.10 per tonne. Only limited materials, referred to as ‘qualifying materials’ can be taxed at the lower rate.
Landfill tax issues affect landfill site operators, businesses sending their waste to landfill, and they can also affect quarry operators, construction businesses and landowners if activities stray into a territory which should require a permit.
There are a number of common issues we’re seeing at the moment, which can result in extensive tax authority enquiries, assessments for significant amounts of additional tax, disputes with the tax authorities and litigation.
Does the material properly qualify for the lower rate of tax?
Only very limited materials can qualify for the lower rate of landfill tax. In order to qualify they have to be:
- Materials which are specifically listed in the Landfill Tax (Qualifying Material) Order 2011 (QMO);
- Compliant with the additional conditions and notes in the schedule to the QMO; and
- Accompanied by a waste transfer note which accurately describes the waste in terms which relate to the QMO.
Processed wastes from waste recycling activities, referred to as ‘qualifying fines’, can also qualify for the lower rate of tax provided that:
- They are comprised mainly of materials listed in the QMO; and
- The prescriptive guidance for ‘qualifying fines’ set out in the sections of public notice LFT1 which have the force of law is followed.
The significant differential in the rates of landfill tax, at nearly £99 per tonne, means that potential issues can quickly result in very large amounts of additional tax being due.
The tax authorities have been focussing closely on compliance with the rules for lower rate disposals for a number of years. Common errors that occur:
- Waste transfer note descriptions are written for operational reasons to comply with Duty of Care requirements, and the descriptions used can often be too vague;
- The ‘qualifying fines’ rules in LFT1 are complex, resulting in inadvertent compliance errors being missed; and
- The materials being deposited do not match precisely with the QMO which is both narrow and prescriptive.
In the recent case of Singleton Birch Limited and FCC Recycling (UK) Limited v HMRC  UKFTT 619 (TC), the First-tier Tribunal found that an acidic ferrous chloride waste generated by a titanium dioxide facility qualified for the lower rate of landfill tax when it was treated on site using virgin slaked lime, but did not qualify for the lower rate of landfill tax when it was treated by FCC using Air Pollution Control Residue they had collected from a different process.
Without delving into the chemistry, in essence the neutralisation reactions from both treatment processes involved treatment of the ferrous chloride with calcium, but the resulting tax treatment was different due to the narrow construction of the QMO. A salutary lesson for those sending qualifying materials to landfill.
Landfill tax exemption for quarries
Quarries which are required to be restored as part of their planning consent can benefit from a landfill tax exemption for that restoration provided that their environmental permit only allows them to accept materials listed in the QMO.
The narrow construction of the QMO can make demonstration of compliance with this condition difficult. The wordings used in the list of permitted wastes that may be accepted often do not align precisely with the QMO.
In recent years we have seen the tax authorities enquire into the landfill tax exempt status of a number of quarries, leading to extended enquiries and dialogue about the wastes which genuinely can be accepted under the permit.
For any quarry operator currently benefitting from landfill tax exemption, or considering use of the landfill tax exemption for restoration activities, it is well worth reviewing the list of wastes in the permit. If there are waste codes or descriptions that do not align precisely with the QMO we would highly recommend revising the permit and agreeing the wording with the relevant tax authority.
Illegal or unauthorised disposals
The vast majority of businesses have no intention of illegally disposing of waste, but can inadvertently be caught by the rules introduced in April 2018 which allow the tax authority to collect the standard rate of landfill tax on unauthorised disposals. In Wales the rate is 150% of the standard rate.
The tax authorities work together with the environmental regulators in identifying and assessing landfill tax for unauthorised disposals. Contact from the regulator asking about material may be followed by a tax authority enquiry.
We tend to see these issues arise in two ways:
- During a genuine construction activity which does not require a permit for disposal of waste the facts and circumstances change, triggering a requirement for a permit to be obtained. The change can pass unnoticed during the course of operations, resulting in potential environmental non-compliance and additional tax being due.
- Landowners are automatically jointly and severally liable for unauthorised disposals on their land unless they can show that they did not knowingly cause or permit it and that reasonable steps were taken to prevent it.
Common triggers to look out for to avoid potential issues include:
- Construction material being reused as a non-waste under the Definition of Waste: Code of Practice may become a waste if contaminated material is found. Contaminated material should be segregated and dealt with separately through a permitted facility.
- Waste material that is being temporarily stored before disposal or before it goes for recovery or treatment can need a permit if the intended storage period is extended. If plans change consider whether a permit is needed.
being sent to. As these water discounts tend to apply to wastes which are subject to the standard rate of landfill tax at £102.10 per tonne, the saving achieved can be very valuable.
The tax authorities have been reviewing water discounts more frequently over recent periods.
In order to qualify for a water discount the water must have been added:
- To allow the waste to be transported for disposal (e.g. light or dusty wastes);
- For use in the extraction of minerals; or
- In the course of an industrial process (including effluent or sewage sludge from water treatment); and
- The added water must be at least 25% of the material by weight.
Issues can crop up where there is ‘natural water’ present in the material. Natural water does not qualify for a discount, and you need to agree with HMRC how the natural water should be counted. Natural water tends to be:
- Rain or snow that falls on the waste;
- Collected storm or surface water drainage; and
- Water that is naturally present in the material, e.g. food materials, some organic wastes, soils.
Once a water discount has been granted it is also subject to conditions, which include conditions related to monitoring and testing that needs to be done to be able to demonstrate that the material has the water content which is being claimed.
How we can help
Our environmental tax team has extensive experience of dealing with landfill tax issues, complex long running HMRC enquiries, dispute resolution and litigation. They can help you to access the reliefs you are entitled to, get agreement with HMRC on the treatment of difficult technical points, review your processes and controls to manage the risks you are exposed to, and deal with HMRC enquiries, assessments and disputes. If you would like to find out more please contact one of our team.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication.
Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. You should always seek appropriate tax advice before making decisions. HMRC Tax Year 2023/24.