Legislative update: Landfill tax rebates for biodegradable waste
Angus Evers considers a recent Court of Appeal ruling in a long-running saga involving a Scottish landfill site operator that requested a landfill tax rebate for biodegradable waste that was used to generate electricity after being deposited
AScottish landfill site operator has yet again been defeated, this time in the Court of Appeal, in a long-running dispute with HM Revenue & Customs (HMRC) over the question of whether it was entitled to a landfill tax rebate for biodegradable waste deposited at its site that decomposed and produced methane that was subsequently used to generate renewable electricity.
On this occasion, it was the Court of Appeal’s turn to reject the operator’s claim that it was using the landfilled material to make methane to generate electricity, rather than dispose of it.
Patersons of Greenoakhill Limited operated a landfill site for non-hazardous waste near Glasgow under a pollution prevention and control (PPC) permit issued by the Scottish Environment Protection Agency. The PPC permit included conditions requiring Patersons to collect, extract and dispose of or utilise landfill gas arising on the site, so Patersons installed a gas collection system.
It subsequently applied for a Scottish Renewables Order Contract (similar to Renewables Obligations Certificates in England and Wales) and obtained planning permission for the ‘installation of a waste gas to energy generation plant’. It installed eight gas engines with a total generating capacity of just over eight megawatts. In 2009, it claimed a landfill tax repayment of approximately £3.5 million for the period between 31 March 2006 and 31 March 2009 on the grounds that material was used to generate renewable energy. Its claims were rejected by HMRC, as were its appeals to the First-Tier Tribunal’s Tax Chamber and the Upper Tribunal’s Tax and Chancery Chamber, so it then appealed to the Court of Appeal.
The Court of Appeal’s ruling
The three Court of Appeal judges unanimously rejected Patersons’ appeal, with Lady Justice Arden delivering the leading judgment.
The key legislative provision in the case was Section 40(2)(a) of the Finance Act 1996, which states that a disposal is a taxable disposal for landfill tax purposes if ‘it is a disposal of material as waste’. ‘Material’ for these purposes means material of all kinds, including objects, substances and products of all kinds.
The key issue in the case was whether Patersons had disposed of the biodegradable element of the materials it had acquired from its customers as waste, if at the time of deposit on its landfill site it intended to extract methane from those materials when they had decomposed. Patersons’ arguments focused on its intention and the character of the biodegradable materials at the time of deposit, while HMRC’s arguments focused on the physical character of the materials at the time of deposit. This led to what the Court of Appeal described as ‘sometimes labyrinthine and abstract points’ arising in both the tribunals’ decisions and in the arguments made before the Court of Appeal.
Having considered the two tribunals’ decisions and the respective parties’ arguments, Lady Justice Arden ruled that the case turned on the interpretation of the word ‘material’. She ruled that the term must refer to the material in its form on the date of deposit in the landfill site and not the material in the form that may exist at any time (which would be uncertain). On the date of deposit, the court determined it was biodegradable material and not the methane produced as a by-product of its decomposition.
It may seem surprising to some that Patersons should have continued to pursue its litigation against HMRC to the Court of Appeal, but given the considerable sums at stake, the claim must have been considered worthwhile pursuing commercially. It remains to be seen whether Patersons will appeal to the Supreme Court.
Angus Evers is a Partner and Head of Environment at national law firmShoosmiths LLP and can be reached at [email protected]