Details have emerged of the government's plans to overhaul the Landfill Tax system, including proposals to charge a higher rate of tax for some materials which are currently considered inert and therefore charged a lower rate of tax, such as coal fly ash.

The Treasury wants to change the Landfill Tax system to reflect changes in waste management practise, waste law and recent litigation

The Treasury has published a consultation document which explains the planned changes to Landfill Tax legislation which it first announced in yesterday's Budget (see letsrecycle.com story).

The document claims that the overhaul is necessary to reflect changes in environmental protection regulation since the Tax was first introduced in 1996 - such as the EU Landfill Directive, changes in waste management industry practice and the impact of litigation such as the court ruling in a case between HM Revenue and Customs (HMRC) and Waste Recycling Group (WRG) last July.

In particular, the Treasury has outlined plans to redefine a number of wastes currently classed as inert waste under the levy and therefore only incur a charge of £2.50 per tonne when landfilled. These instead would be subject to the full level of tax, which is currently £40 per tonne.

To achieve this, it said that it planned to "follow the various tests in European legislation" for determine whether a waste was inert.

Among the wastes which it said it expected to no longer qualify for the lower rate are: coal fly ash (pulverised fuel ash); bottom ash and slag and boiler dust; furnace slags including slag from waste incineration; used foundry sand; gypsum/ calcium sulphate; brine waste; red mud; and, low activity inorganic compounds.

In an impact assessment accompanying the consultation, the Treasury estimates that this change could cost up to £160 million based on current landfill tax rates, with the largest burden attached to coal fly ash, at £112.5 million.

However, the Treasury also suggested that this change be introduced on a transitional basis to "assist in managing the impact of wastes moving from the lower rate to the standard rate of tax".

It suggested this be done either by delaying its implementation for a year longer than the other changes proposed in the document or by introducing a separate "transitional rate" of Landfill Tax for a set period.

WRG

The document also confirms plans unveiled by the Chancellor yesterday to make more immediate changes to how Landfill Tax is applied to certain activities on a landfill site with effect from September 1, 2009, citing last year's WRG vs. HMRC case as a key driver.

In the case, the Court of Appeal ruled in favour of WRG against HMRC in relation to Landfill Tax that the Northamptonshire-based company had paid for inert materials which were accepted onto its site and then used for daily cover and site engineering purposes.

The Court agreed with WRG's argument that the inert material was not a taxable disposal and had not been disposed off as waste, a decision that some believed could prompt a flood of claims for refunds of Landfill Tax by waste management companies.

Following that ruling, and a clarification issued in December 2008 by HMRC reflecting it, the Treasury's plans for September 1 appear to move to close this avenue.

The consultation said: "Following the WRG case, HMRC have accepted that, across the UK, a significant amount of waste is outside the scope of landfill tax.

"At the same time, the Government believes that the policy rationale underlying the tax points to an imperative to tax much of this waste. Legislation in 2009 will, therefore, bring certain wastes back into the scope of the tax," it added.

Commenting further on the planned changes, which are not up for consultation and are set to come into force as part of the Finance Bill 2009, it said: "In response to the Court of Appeal's judgment in the WRG case, at Budget 2009 the Government announced that it would legislate in 2009 to make clear that, notwithstanding how landfill tax legislation currently determines what is a taxable disposal, use of material for the following purposes constitutes a taxable disposal: daily cover; temporary haul roads; temporary hard standing; cell bunds - not part of the engineering structure; temporary screening bunds; and, temporary storage of ashes (including pulverised fuel ash and furnace bottom ash)."

Taxable disposal

The Treasury also said that it aims to redefine what constitutes a taxable disposal, aiming to clarify three key issues - where a taxable disposal takes place, where - during the landfill's activities - the disposal is taking place and, what the material is being used for.

To define both the area of the disposal and the activity, the Treasury proposed its rules be based on permits issued under either the Environmental Permitting Regulation 2007 (for England and Wales), or the Pollution Prevention and Control Regulations 2000 (for Scotland and Northern Ireland).

In both cases, it claimed: "The advantage of this option is that it is based on existing administrative arrangements and burdens (those associated with permitting). Additional burdens would be minimised."

And, with regards the use of materials, it proposed a list of exclusions where the tax would not have to be paid, to ensure that it was not levied on plant and machinery and also the use of waste as a substitute for virgin material for engineering purposes, but "only where the engineered feature is not incorporated into the mass of the landfill".

Timescale

Responses to the consultation must now be submitted by July 24, 2009.

Following the consultation, the Treasury plans to legislate for the long-term changes as part of the Finance Bill 2010, with the changes coming into effect "some time after that".