Wet size-screening actively encourages the recycling of a significant proportion of material which would otherwise be destined for landfill. This approach to obtaining aggregate on site is therefore environmentally beneficial because it encourages the recycling of incidentally excavated material and reduces the need for virgin aggregate. It minimises vehicle movements to and from the site, reducing the levels of pollution and congestion.
Despite the benefits of onsite recycling such as wet size-screening, we have seen HMRC argue that materials which have been through the wet size-screening process no longer qualify for the lower rate and should be standard rated. HMRC has argued that material which had undergone wet size-screening was no longer naturally occurring because it had been through a sorting process.
Given that materials like ‘crushed stone’ and ‘construction stone’, which must have changed from their excavated form, qualify for the lower rate, we consider that parliament’s intention is not being actively reflected in HMRC’s current approach and the legislation requires clarification to ensure that it is applied appropriately, consistently and fairly.
The approach of the landfill tax regime to water also needs to be clarified. We have also seen arguments from HMRC that sorting materials using water can prevent them from being qualifying material because of the presence of water in the sorting process. We consider that the landfill tax legislation needs to be clearer on how water is treated for landfill tax purposes as HMRC is applying this inconsistently in practice.
As a result of the difference between the standard and the lower rate, these approaches to the recycling of excavated earth can substantially increase the landfill tax due on a project. This actively discourages re-use and recycling of material in favour of disposal contrary to the waste hierarchy and the intention behind both landfill tax and aggregates levy.
Disposals outside of a landfill site
Another area of uncertainty relates to disposals outside of landfill sites in light of the 2021 decision of the Court of Appeal in the Devon Waste Management case.
In 2018, the landfill tax legislation was amended so that it also applied to material disposed of outside of a landfill tax site. This was designed to prevent fly-tipping.
It is common on large infrastructure projects for excavated material to be used onsite as fill and this is consistent with the aims of the waste hierarchy. However, we consider that following the Court of Appeal decision in Devon Waste Management, there is ambiguity over whether incidentally excavated material which is being used for fill but would otherwise be considered waste is going to be considered disposed of outside of a landfill site by HMRC for the purposes of landfill tax and therefore chargeable to tax.
Given the Court of Appeal’s conclusions in the case, we think that there is ambiguity, and the landfill tax regime would benefit from clarification on these points so that the re-use of materials is not discouraged.
Waste in an existing landfill
We also consider there is room for added clarity around the taxability of material which is being removed from an existing landfill site and taken to a new one. Given the sheer volume of landfill in England there will inevitably be scenarios where large infrastructure projects interact with existing landfill sites. In these circumstances, landfilled material may need to be excavated, sorted and landfilled again. This can result in double taxation and very significant additional costs to projects.
We think the current legislation could be made clearer on this point and that consideration should be given to an exemption that can assist in such circumstances. For example, this might apply where there is some form of processing of the excavated landfill material or where an effort has been made to improve the excavated waste from an environmental perspective. The exemption should, however, recognise that treatment will not always be feasible or worthwhile, and we consider that taxpayers that have taken reasonable steps to establish that should not be prejudiced.
Co-written by Sam Wardleworth of Pinsent Masons.
