BIM67440 - Waste disposal: Site restoration expenditure - Tax Bulletin article April 1998

“The requirement for relief is that a person makes a site restoration payment in the course of carrying on a trade. There is no statutory requirement that the person claiming relief either deposited waste on the site or that the trade being carried on is wholly of, or indeed includes, waste disposal. However, there must be a trade being carried on when the payment is made and thus, if trade has ceased at the time of the payment, it cannot be relieved under the Section.

The legislation defines a 'restoration payment' as a payment made in connection with the restoration of a site or part of a site and in order to comply with the condition of a relevant licence or a relevant agreement. 'Restoration' is not defined and it therefore takes its usual dictionary meaning of replacing, reconstructing or returning something to its original state.

We do not regard the legislation as applying to sites other than those where waste disposal activities within ICTA88/S91A (5) have taken place. For example, the legislation does not apply to sites where contamination has occurred as a result of the 'on-site' disposal of industrial, etc. waste unless the disposal was under a relevant licence as defined in ICTA88/S91A (6) or there is a relevant agreement within ICTA88/S91A (7). Similarly, a local authority may require that contaminated land on a former industrial site be restored as a condition of their giving planning permission for development. However, that requirement is unlikely to be under Section 106 of the Town and Country Planning Act 1990 or the other statute listed in ICTA88/S91A (7). Unless it is under the specific statute, ICTA88/S91A will not be in point.

There are a number of different elements of expenditure, all of which are generally incurred after waste disposal has ceased and capable of being described as restoration expenditure.

One is the cost of covering the site with an impermeable layer, sub-soil and topsoil, contouring, drainage, seeding, tree planting and other similar activities directed to returning the site to a condition where it is suitable for alternative use. These activities can readily be identified as restoration. They are generally, but not necessarily, incurred after waste deposition at the site has ceased, are normally made 'once and for all' and have the effect of changing the physical appearance of the site. This expenditure has all the marks of capital expenditure and relief is available in accordance with ICTA88/S91A in so far as it cannot be relieved by way of capital allowances [ICTA88/S91A (3)(b)].

Another type of expenditure is on the continuation of work which is first required while the site is being used for waste disposal. As soon as waste is deposited, unless it is totally inert, it begins to decompose, producing noxious liquids and potentially hazardous or flammable gases. Many sites will have pipes, pumps, and possibly treatment plant, etc. installed to sample and deal with these potentially polluting substances. Waste disposal licences will generally require the site operator to undertake a programme of sampling and analysis to establish that no problems exist or arise. As a result, during the active life of the site when waste deposition is taking place, a programme of sampling, analysis and treatment, etc. will begin. This will continue seamlessly into the period after waste disposal has ceased and might then be described as 'aftercare'.

We see no distinction between the costs of the routine monitoring and treatment, etc. described above during the active life of the site and subsequently after waste deposition has ceased. Therefore, we accept that the costs of routine monitoring, analysis and treatment is revenue expenditure, whenever incurred, and, as such is outside ICTA88/S91A. Such expenditure should be dealt with as ordinary revenue expenditure.

We acknowledge that generally accepted accounting practice requires a provision be made for future restoration expenditure. The costs of restoration can only be matched against the income generated from waste disposal and are a charge against that income. Since the decomposition of waste and the resulting potential environmental problems can occur over many tens of years the waste site operator will have a long-term commitment to carry out 'restoration' work.

However, ICTA88/S91A only permits a deduction for a site restoration payment in the period of accounts in which the payment is made.

It has been suggested that the wording of ICTA88/S91A (3)(a) implies that provisions are allowable but that is not the case given the clear statement of the position in ICTA88/S91A (1). In order to explain the wording of ICTA88/S91A (3)(a) it is necessary to outline the background to the legislation. Until the decision in the tax case of Rolfe v Wimpey Waste Management Ltd [1989] 62TC399 - (see BIM35605) restoration expenditure was in practice treated as a revenue deduction. However, the Wimpey decision established that both preparation and restoration expenditure (such as recovering the site and planting trees, etc.) were capital and, therefore, no revenue deduction could be allowed. Subsequently, what is now ICTA88/S91A was enacted to give relief for restoration expenditure. Since the new legislation gives relief on an 'as paid' basis, without ICTA88/S91A (3)(a) it would have been possible to claim a deduction for expenditure when paid 'post-Wimpey' which had previously been allowed as a provision 'pre-Wimpey'. Thus subsection ICTA88/S91A (3)(a) does not allow a provision but denies a double deduction in the circumstances described.

In so far as a provision for restoration is for capital expenditure that provision is not allowable in computing Case I profits. It would not be allowable under the normal rules which prohibit a provision for expenditure, such as capital expenditure, which would be disallowable when incurred nor under ICTA88/S91A which only permits a deduction when the (capital) expenditure is incurred.

However, where a provision for restoration costs is for revenue expenditure, the question of ICTA88/S91A does not arise. Such a provision would be allowable as a Case I deduction, subject to the usual rules. In the context of provisions for expenditure which will be incurred scores of years in the future the questions of accuracy and appropriate discounting may be in point. Subject to those questions a provision for the future revenue costs of routine monitoring and treatment of gases and leachate are likely to be allowable”.