ESA raises very serious concerns over VAT change

The Environmental Services Association has written to both HM Revenue and Customs and recycling minister Lord Henley to raise objections over the recently-introduced VAT exemption for council-run trade waste collections.

In letters seen by letsrecycle.com, the trade association which represents private waste management and recycling companies said it had very serious concerns over the decision to change the VAT regime in relation to local authority-run collection services.

These are outlined in a letter sent by ESA chairman Ian Goodfellow to Lord Henley and a second sent by director of policy Matthew Farrow to David Ogilvie, who sits on the HM Revenue and Customs (HMRC) supply of services and public bodies team.

Mr Ogilvie wrote to councils in February 2011 to inform them that local authority-run trade waste collections had been deemed outside the scope of VAT following a review of existing VAT policy (see letsrecycle.com story). This means councils are effectively able to offer a discount on their service.

And, while HMRC has claimed the change will not create any significant distortions in the marketplace, the ESAs letter flags up major concerns over how it could impact on competition between private waste companies and local authorities for trade waste work.

Impact

In particular, the ESA claims that the decision flies in the face of the principle of creating a level playing field between private sector waste management companies and local authority direct services organisations (DSOs) in competing for commercial waste.

It disputes HMRCs view that the change will not impact the market, and says it knows of several local authorities which see the change as giving them an advantage in seeking new SME customers.

And, according to the ESA, councils currently serve 38% of small and medium-sized enterprises (SMEs) through DSOs.

In what it labels a highly price sensitive, the ESA letters claim that the VAT decision creates a direct price differential between privately and publically-run operations.

And, it states: All SMEs and commercial customers could gain a cash flow benefit by choosing a DSO to collect their waste, rather than paying VAT upfront to a private provider before subsequently reclaiming it from the Revenue.

The ESA also raises concern that no consultation that it was aware of was carried out before the decision was taken. Further to this, the ESA states that HMRC has produced no evidence to support its claim that significant distortions will not occur in the market.

In the letter to Lord Henley, ESA chairman Ian Goodfellow states: At a time when ESA and its members are looking to work closely with your Department [Defra] to take forward the conclusions of the forthcoming waste review, I hope that you will agree that this decision by HMRC is cause for concern.