HMRC consults on landfill tax extension to illegal waste deposits

The government has asked members of the waste industry to give their views on the proposed extension of the landfill tax to include deposits made illegally on unpermitted sites.

HMRC consults on landfill tax extension to illegal waste deposits
Under the new changes, illegally deposited waste would be subject to Landfill Tax
Aspects like the definition of what constitutes a waste site, who is responsible and what rate of tax should be paid on illegal disposals are all considered in a consultation launched by HM Revenue & Customs (HMRC) this week (20 March).

It was proposed in this month’s Spring Budget that the landfill tax, which was established in 1996 to disincentivise landfilling material, be extended to apply to the disposal of material at sites operating without an environmental permit.

At present, the government says, these illegal waste sites operate outside the scope of the tax, making the activity attractive to rogue operators who exploit the disparity of tax treatment to undercut legitimate operators. Last year, the Environment Agency (EA) Chief Executive, Sir James Bevan, said that waste crime was “the new narcotics”, comparing the fight against rogue traders illegally dumping and storing waste in unregulated sites to the battle with “drugs in the 1980s”.

The EA says that it found over 1,000 new illegal waste sites in 2015/16, and through enforcement closed 989. However, as of the end of March 2016, it recorded that there were still 622 active illegal sites.

Bringing illegal sites into the tax, HMRC hopes, would deter non-compliance by making waste crime less profitable, levelling the playing field for the legitimate waste management industry. The current number of illegal waste sites, it says, has the potential to ‘seriously undermine’ the landfill tax system.

Ahead of any changes, HMRC is holding a public consultation to gather thoughts on how extending the scope of the tax would work, with those directly or indirectly affected by illegal waste sites in England and Northern Ireland particularly targeted.

The landfill tax was devolved in Scotland in 2015, and will be devolved in Wales from April 2018, with both already approving plans to include illegal waste site deposits in the tax.  

The government says that, should it decide to pursue the policy, the earliest any changes would come into force is 1 April 2018.

Definition of a waste site

The consultation asks how an illegal waste site should be defined, and how to avoid including sites that legitimately operate without a permit due to Defra exemptions.

The proposed definition uses the EA’s summary of what makes an illegal waste site as: ‘A site operating without the appropriate permit for the activity being carried out where multiple loads of waste are deposited, treated, stored or disposed of, and where activity is, or appears to us to be taking place in an organised manner. The activities at the site will generally (but not always) be known to the landowner or the legal occupier of the site and will often be run as a business.’

Definition of a taxable disposal

As well as announcing the possibility to extending the scope of the landfill tax, the budget also introduced changes to the definition of a ‘taxable disposal’ for the tax, establishing that the tax is chargeable on material ‘if it is a disposal of material at a landfill site’, with a landfill site being defined as an area covered by the necessary environmental permit authorising disposals.

These changes were introduced to counter claims from operators that the material deposited is not waste, and therefore outside the scope of landfill tax.

Looking ahead to a tax on illegally deposited waste, HMRC proposes that when a material is disposed of at a site operating without a permit then all material on the site will be deemed to have been disposed and will be subject to the landfill tax, ensuring, the document says, that any extension of the tax to illegal waste sites will ‘likewise avoid any dispute over the intention of the person making the deposit’.

Who and what to tax

The consultation also seeks views on who should be liable for the landfill tax on disposal at illegal sites, and what rate should be attached to the new band of the tax.

For permitted sites, the listed site operator is liable for tax payment, but as there is no permit holder for illegal sites, deciding who pays is more complicated. HMRC suggests that the ‘controller’ of such a site will not always be the main person responsible for the activity, with complicit landowners, waste transporters or waste producers also being responsible.

For permitted operators, the rate will be set at £88.95 per tonne for standard material (£2.80 per tonne for lower rate material) as of April 2018. This represents an increase from the 2017 rates – £86.10 per tonne, and a lower rate of £2.70.

However, HMRC states that: ‘Material disposed of at an illegal waste site could have originated from many different sources and it would not be possible to determine the appropriate rate of landfill tax with any degree of accuracy. We would therefore need to adopt a different approach to calculating the tax due.’

It suggests charging the standard rate for all waste, assuming that a key driver of illegal dumping is evasion of the landfill tax, which would mostly be done when dealing with standard rated material. In Wales, a new, higher rate has been approved for unauthorised disposals to deter illegal waste activity.

The consultation closes on the evening of 5 May 2017.

HMRC’s consultation document on changes to the landfill tax can be read and downloaded on the department’s website.

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