In order to clarify the boundaries between higher rate and lower rate landfill tax, HMRC launched a consultation on Landfill Tax, yesterday (30 June).

The consultation, Landfill Tax - Liability of waste 'fines',seeks to understand the misapplication of landfill fines and the introduction of a Loss on Ignition (LOI) test that will assist operators of landfill sites to determine the correct tax liability of fines.

Comments are welcomed for the next 12 weeks and should be sent via email to landfill-tax.consultation@hmrc.gsi.gov.uk

Consultation Background

Introduced in 1996 at just £7 per tonne, Landfill Tax has risen by around £8 every year to deter the practice of sending waste to landfill, encouraging waste to be treated higher up the waste hierarchy instead.

However, according to the ‘criticized’ Budget 2014 document, the standard and lower rates of Landfill Tax will increase in line with the RPI (currently between two and three per cent), rounded to the nearest five pence, from 1 April 2015.

According to the Budget, in 2015/16 and 2016/17, the total amount of Landfill Tax and Landfill Communities Fund money being brought in to the Treasury will rise by £5 million, increasing to £10 million in 2017/18 and 2018/19.

The 2014 document reads: ‘Following industry engagement to address compliance, the government will introduce a loss on ignition testing regime on fines (residual waste from waste processing) from waste transfer stations by April 2015. Only fines below a 10 per cent threshold would be considered eligible for the lower rate.’

Loss on Ignition testing

The Government’s working group agreed that an objective laboratory test needed to be made available to test waste at the point it is disposed of to landfill. This test would assist landfill site operators in assessing landfill tax liability in cases where there was uncertainty and would be used on a mandatory basis to test a random selection of samples to assure that the lower rate was being applied accurately and consistently.

It was concluded that the well-established Loss on Ignition (LOI) laboratory test would be suitable as it determines the biodegradable and/or combustible element of the waste, which is indicative of the likely pollution potential, and therefore a reasonable means of identifying the tax liability.

In order for the LOI test to be usable in supporting decisions on the landfill tax liability of fines, a regime needs to be developed covering a range of issues, such as when it should be used, how often, who should undertake it etc. It was established that this regime needed to have mandatory elements to it to make it effective.

How the testing will take place

It is estimated that there are approximately 6,000 waste transfer and treatment plants in England, Wales and Northern Ireland, of which about 450 produce fines, with approximately 4.5 million tonnes being produced each year. There are about 200 landfill site operators registered for landfill tax across the UK.

With this amount of waste it is impossible to test everything. The government proposal stipulates that landfill operators will need to test samples of waste from all their customers periodically and sets out a minimum level of testing of one test per 1,000 tonnes of waste.

The tests will need to be random and HMRC has the power to order new tests if they suspect they were carried out unfairly.

This testing regime will support the existing pre-acceptance checks, visual checking of loads and analysis of waste transfer notes and other paperwork, all of which will continue. Landfill operators will continue to be required to keep evidence to justify their decisions for lower rating a load of fines though the nature of some of that evidence will change to some extent.

Where a disposal to landfill contains both standard-rated and lower-rated materials (a so-called ‘mixed load’), tax is due on the whole load at the standard rate.

Preparation for testing

Ahead of the formal introduction of the LOI regime, landfill site operators should, where possible, start conducting pre-acceptance checks with their existing customers where they are not already doing so. They should also undertake at least one LOI test for each customer per fines waste stream. The pre-April LOI tests will provide an indication of the eligibility for lower rating of fines produced by that waste producer. This will assist the waste producer in determining what additional steps they need to undertake for their waste to pass the LOI test and will assist landfill operators in determining how frequently waste from that producer needs to be tested from April 2015.

Commenting on the proposals, ESA’s Director General, Barry Dennis said: “Misclassification of waste ‘fines’ for landfill tax purposes distorts the market and has significant economic and environmental impacts. As shown in the recent ESAET Report ‘Waste Crime: Tackling Britain’s Dirty Secret’, nearly £160 million per annum is being lost to the public purse, due to waste materials, deliberately or otherwise, being incorrectly described as ‘low rated’ in terms of landfill tax.

Historically, landfill site operators have had to largely rely on visual checks alone and we hope that the introduction of a Loss on Ignition (LOI) testing regime will take away the opportunity for tax to be avoided and will also help to ensure more waste is recycled and recovered.”

Seeking your views

This consultation is taking place during the second stage of the process. The purpose is to seek views on the detailed policy design and a framework for implementation of a specific proposal, rather than to seek views on alternative proposals.

A list of consultation questions can be found in the full document and comments are to be sent to landfill-tax.consultation@hmrc.gsi.gov.uk

Read more about the legislation behind the consultation.