Good intentions not enough?
Landfill tax (‘LFT’) is seen as an exemplar of how behaviour-changing environmental taxes should operate, and with good reason. By increasing substantially the cost of sending waste to landfill, the tax has incentivised recycling and made more sophisticated treatment processes commercially viable. LFT case law has also served as a prime example of how UK tax legislation must be interpreted literally and not purposively.
The 2008 Court of Appeal case of Waste Recycling Group was arguably one of the most significant cases in any indirect tax over the last 20 years and resulted in HMRC refunding any millions of pounds to site operators, and a substantial refund of costs to many of their waste producing customers. That case, and subsequent legacy cases, rested on what the legislation meant when stating that the tax applied to material deposited ‘as waste’ into landfill. The taxpayer successfully maintained that material which was received as waste but which went into the site for a specific purpose like road building or cell lining, was not, therefore, ‘waste’, and should not be subject to LFT. There followed lots of debate about what is ‘waste’ and who’s view of the material is important – the producer of the material or the site operator who places it into the landfill site. Eventually, the taxpayer won on the literal interpretation of that one word, ‘waste’, and a whole lot of material that had previously been subject to LFT suddenly became tax free, and HM Treasury had to sign off some pretty large cheques.
One might take the view that the recent case of Singleton Birch saw the taxpayer being hoisted by his own petard. Legislation states that the reduced rate of LFT applies to waste consisting entirely of ‘calcium-based reaction wastes from titanium dioxide production. In this (non-binding) First Tier Tribunal, the appellant had taken in waste arising from a third party’s production of titanium dioxide and mixed it with other received waste material in order to make it non-hazardous and suitable for sending to landfill. This treated material had much the same chemical content as other waste material that did qualify for lower rate under this heading, but here, the source of that content was not entirely from titanium dioxide production – some of it was from the mixed in material. The Tribunal found that the waste material did not consist entirely of the lower rate waste, and so did not qualify for the lower rate of LFT – the Tribunal did not accept the more purposive interpretation that the appellant had applied. Its not yet clear whether the appellant will appeal further.
Two points (at least) should be drawn from this case:
- The very best of intentions to meet conditions for LFT relief will not necessarily mean that the relief can be applied. What appears to be an identical activity on the surface, may not be one when it comes to the specifics of the legislation. It always requires a detailed analysis before the relief is applied.
- The phrase ‘the letter of the law’ is particularly relevant to tax legislation. Specific words in the legislation are critical to how the tax is applied, and while we might feel that the intention of the law is clear, it’s the words that count. And that can be a double-edged sword.
The material that was the subject of this appeal is specific to relatively few businesses in the UK so the implication of this case is likely to be significant, but for a small number of taxpayers. However, the principles reinforced by the Tribunal’s conclusions serve as a reminder of how much detailed analysis of legislative terms is required before the rate of LFT – or any LFT relief – can be applied. You say ‘potato’ …
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