Revenue & Customs Brief 15/12

Landfill Tax: material used on a landfill site; and classification of waste

1. Purpose of this Brief

This Brief is for landfill site operators and their advisers and provides further clarification on the Landfill Tax treatment of material used on a landfill site and also the evidence needed when considering whether to apply the lower rate of Landfill Tax to certain wastes.

2. Background

Landfill Tax contributes to the Government's general and 'green' taxation objectives, including the Government's commitment to work towards a 'zero waste' economy. It is the key component of the drive to divert waste from landfill to ensure EU targets are met in 2013 and 2020.

The Brief seeks to give clarity on the Landfill Tax treatment of waste in certain conditions, and to provide appropriate principles so that all landfill site operators consistently apply the Landfill Tax legislation, so allowing operators to compete fairly. This clarification has been sought by the waste management industry itself and representatives of landfill site operators.

The Government will consider how best and when to evaluate the overall Landfill Tax policy against its objective of encouraging the waste management industry and waste producers to seek more environmentally sustainable ways of dealing with waste. The impact of this Brief, and the extent that this policy is achieving its objectives, will be kept under review through regular communication with affected taxpayer groups and information collected from Landfill Tax compliance activities, including whether there are fewer disputes and litigation in this area.

3. Material used on a landfill site

Following the judgment on 22 July 2008 of the Court of Appeal in Commissioners for Her Majesty's Revenue and Customs (HMRC) - v - Waste Recycling Group Limited [2008] EWCA Civ 849 ('the WRG case'), HMRC set out its position in HMRC Brief 58/08 published on 22 December 2008. On 1 September 2009 the Landfill Tax (Prescribed Landfill Site Activities) Order 2009 came into force, bringing specified uses of waste back into the scope of Landfill Tax.

The HMRC Brief invited claims for repayments of tax incorrectly paid. HMRC has received a number of claims based upon the advice given within that Brief and, to date, many such claims have been repaid, subject to the conditions explained in the Brief. Some claims are in the process of being reviewed.

However, HMRC has received a number of claims from landfill site operators and their advisers that relate to materials which are said to be used to protect or provide a suitable stable substrate for the overlying layers at the top of a landfill cell. This material is often referred to as a 'landfill reverse fluff layer' or 'top fluff layer' as opposed to a 'landfill fluff layer', which describes material used for basal landfill engineering to protect the integrity of the lining system.

HMRC has discussed these claims widely, including with site operators and the Environment Agency ('EA'), and have undertaken site visits to inform its decision. It has concluded that the so-called reverse or top fluff layer constitutes careful placement of soft waste that should not cause damage to the cap or regulating layer placed above and should be (and always should have been) liable to Landfill Tax as the waste material is disposed with the intention of discarding it and the disposal does not constitute a use of that material. However, HMRC accepts that the material placed to form the regulating layer (by providing protection to the overlying geo-synthetic engineered cap) would constitute a 'use', up to the time the 2009 Order came into force on 1 September 2009. The basis for this conclusion is that such a regulating layer is an engineering specification which would be set out in specific agreements between the site operator and the EA.

Landfill site operators and their advisers who have made such claims will have them rejected insofar as they relate to the so-called reverse or top fluff layer and any further such claims that are submitted will be rejected.

Up until 31 August 2009, Landfill Tax would not have been due on materials used in this regulating layer and HMRC will accept any parts of claims relating to this subject to certain conditions being met, including considering whether the landfill operator would be unjustly enriched by any repayment of Landfill Tax.

Since 1 September 2009, by virtue of Article 3 (1)(g) of the 2009 Order, waste deposited in the regulating layer was brought back into the scope of the tax and HMRC considers that this remains subject to tax when it is placed against any drainage layer or liner, for example a geotextile separation layer, since such layers or liners form an integral part of the landfill liner.

Where operators have not paid tax in accordance with the clarifications set out above, and where they do not take steps to do so following this clarification, HMRC will make assessments to ensure that all landfill site operators pay the correct amount of tax, ensuring fair and equitable treatment across the industry. The matter will be litigated if necessary. HMRC will enforce these assessments and penalties may also be applicable in such cases.

4. Classification of waste: determining the Landfill Tax liability

Paragraph 3 of Notice LFT 1 'A general guide to Landfill Tax' sets out the evidence required to apply the lower rate of tax to any particular disposal of waste and the Landfill Tax treatment of mixed loads.

To qualify for the lower rate, the waste transfer note, which is required to accompany most movements of waste in the UK, must accurately describe the waste so that it can be related to the terms used in the Landfill Tax (Qualifying Material) Order 2011 (SI 2011/1017) ('the 2011 Order'), which came into force on 1 April 2011. In other words the load must not only be of material listed in the Order, but also described in a manner that clearly evidences that fact on a waste transfer note and/or any other commercial documentation. This requirement applies to all scenarios regardless of whether the load concerned may be considered to contain an 'incidental' amount of standard rated waste.

The material must be listed in one of the groups within the Schedule to the 2011 Order and meet the specified conditions. For example, in the case of Group 1 'Rocks and soils', the group comprises only naturally occurring - rock, clay, sand, gravel, sandstone, limestone, crushed stone, china clay, construction stone, stone from the demolition of buildings or structures, slate, sub-soil, silt and dredgings.

By limiting (in respect of soils) the scope of Group 1 to subsoil, the 2011 Order ensures that other soils such as topsoil, construction soil and soil from demolition of buildings or structures are taxable at standard rate of Landfill Tax.

Where the landfill site operator is not able to demonstrate that the load is of material exactly as described in the 2011 Order, the standard rate of Landfill Tax should be applied.

A number of waste streams consigned to landfill arrive from waste transfer stations and material recovery facilities for final disposal. These wastes will have originated from a number of sources and have been subject to some form of treatment which prioritises re-use, recycling and recovery with disposal at landfill as a final option. For many wastes a suitable treatment might be sorting for recycling and recovery and significant levels of segregation can occur. Any residue from treated transfer station waste that is consigned to landfill will be very variable and it will be impossible to determine the origin and exact nature of the source material. These residues are commonly described as waste transfer station fines, trommel fines, fines for landfill cover, grit and screenings etc. these are not qualifying materials as listed in the Schedule to the 2011 Order (see above). In particular, treated transfer station waste residues cannot be described as material listed within Group 1. In all such cases the standard rate should be applied.

Inspection of loads is the responsibility of the landfill site permit holder. The inspection should ensure that the waste description on the transfer note matches the material delivered to the site. In determining whether the landfill operator has applied the appropriate rate of Landfill Tax, HMRC will refer in particular to how the waste is described on any waste transfer note that accompanied the waste to the site and any other commercial documentation.

If HMRC discovers instances where landfill operators do not hold appropriate evidence to support the lower rate of Landfill Tax, they will make assessments to bring the under-declared tax into charge and will enforce these assessments. Penalties may also be applicable in such cases.

5. Correction of errors

Section 15 of Notice LFT1 explains how to correct Landfill Tax errors. Landfill site operators who deliberately fail to correct an under-declaration of Landfill Tax, may be liable to a civil penalty for dishonest evasion, a civil penalty for deliberate inaccuracy or criminal prosecution.

6. Further information

Where you are in any doubt about the correct Landfill Tax treatment, please phone the Excise and Customs Helpline on 0845 010 9000.

Issued: 18 May 2012