BIM67510 - Waste disposal: Site preparation expenditure - Tax Bulletin article April 1998

“We have been receiving a number of representations and enquiries relating to how, when and by whom relief might be obtained for expenditure on the preparation and restoration of landfill sites for waste disposal. The relief is obtained by virtue of ICTA88/S91B and ICTA88/S91A for preparation and restoration expenditure respectively. In recent years much waste disposal has moved from the hands of local authorities, etc. to private sector companies and the operation of the legislation has become a far more significant question. This is also an area where we have been developing and refining our views in recent months.

The purpose of this article is to explain the way in which we interpret the legislation and to deal with some of the particular points which arise most frequently”.

“In order to obtain relief for preparation expenditure it is necessary for the same person to both incur preparation expenditure [ICTA88/S91B (1)(a)] and to hold a relevant licence which is in force when that person first deposits waste [ICTA88/S91B (1)(b)]. It is not necessary to hold the licence when the expenditure is incurred. Indeed, given the nature of the expenditure, much of it will inevitably be incurred before a licence can be obtained.

We do not regard the requirement to incur expenditure as being satisfied where one person actually incurs the expenditure but recharges it to another person who holds the licence when first depositing waste. In that circumstance the two essential elements for relief are in two different hands and no relief will be available to either person”

“This question has previously been considered in an article in Tax Bulletin Issue 5i (November 1992 page 45 see BIM67505). There it was made clear that capital expenditure, excluding the cost of acquiring the site itself, was covered provided that the expenditure does not qualify for capital allowances. Revenue expenditure is outside ICTA88/S91B and subject to the usual rules.

Site preparation expenditure therefore includes the costs of assessing a site for suitability, surveying and soil testing, and the costs of obtaining planning permission and the waste disposal licence. Also included are the costs of providing the infrastructure and engineering a site to the point where waste can be deposited. All of this expenditure contributes to creating the total potential capacity of the site.

Modern practice is to create within a single site a series of cells each of which is filled with waste material before being sealed. As the original cells are filled further cells will be constructed vertically and horizontally such that, over a period of time, a 'honeycomb' arrangement results. During the useful lifetime of a site a large number of cells will be constructed. Each of the cells may have a short economic life, that is the period during which they can receive waste.

This might suggest that expenditure on creating the cells is not capital and thus outside ICTA88/S91B. However, since the expenditure results in the permanent modification of a capital asset, the site, it could be argued that the expenditure is capital notwithstanding that the income producing life of the cell is short.

We view the application of the capital/revenue divide in this context as essentially one of economic effect. Thus, in practice, we would not normally seek to distinguish between expenditure on an asset which will cease to exist within twelve months and expenditure where the asset continues to exist after twelve months but has no economic value at the end of that period. In that light, provided the individual cell which is the subject of the expenditure will be completely filled and sealed within a period of two years from the date of its construction, we accept that expenditure on creating the individual cells is revenue and not, therefore, within ICTA88/S91B.

Where preparation expenditure is incurred in relation to a site for which planning permission or a licence are not ultimately granted (that is abortive expenditure) the expenditure cannot be relieved under ICTA88/S91B because nobody holds a licence when waste is first deposited on the site. Similarly, where expenditure is incurred in creating the whole potential capacity of the site and, for whatever reason, the whole of the potential capacity is not ultimately used, some part of the preparation expenditure will not be relieved. This might, for example, occur where a series of licences or permissions, etc are required as development of a large site progresses. If such licences, permissions, etc are refused for part of the site, the fraction of the preparation expenditure relating to that part of the site will not be relieved”.