HMRC Prepares to Enforce Higher Landfill Tax Status of Trommel ‘Fines’
This year is likely to see final confirmation of the landfill tax status of ‘trommel fines’ following nearly two years of debate, triggered by the briefing note issued by the HMRC in May 2012. ‘Fines’ are generated at Waste Transfer Sites (WTS) by trommels (large screened cylinders) which separate materials by size, e.g. separating the biodegradable fraction of mixed municipal waste or separating different sizes of crushed stone. Trommels typically strip out all materials below 40 mm in diameter – those that cannot be effectively recovered for recycling. The resulting material may well consist largely of soil, but will also often contain significant paper, wood and metal fragments and other miscellaneous items. In any event, it is very hard to argue that these ‘fines’ are in their composition, similar to ‘naturally occurring soil’, a stipulation for eligibility for the lower landfill tax rate of £2.50/tonne, as compared to £80/tonne charged for ‘non-inert’ waste.
The HMRC’s 2012 briefing note was issued following a number of calls from landfill operators requesting further guidance on the evidence needed to justify charging the lower landfill tax rate set out in the 2011 Landfill Tax (Qualifying Material) Order. As a result of the response from industry, an additional clarification was published by HMRC in June 2012. This was subsequently followed up in September 2013 by publication of a document entitled “landfill tax – draft further guidance on lower rating”, which was due to be revised and reissued following informal consultation, due to end 11 November 2013. Although HMRC has postponed its final publication pending further consultation, this delay can only be seen as a temporary “stay of execution” before HMRC insists on more rigorous compliance with the requirement of the 2011 Order.
The 2011 Landfill Tax (Qualifying Materials) Order stipulates that the lower landfill tax rate is only applicable to 8 groups of materials, including:
* Group 1 – Rocks and soils (naturally occurring)
* Group 2 – Ceramic and concrete (other than concrete plant washings)
* Group 3 – Minerals (processed or prepared – moulding sand, clay, mineral absorbents man-made fibres, silica, mica, uncontaminated mineral abrasives).
(Other categories include: furnace slags, ash, low activity inorganic compounds such as calcium sulphate, calcium hydroxide and brine – provided it is deposited in a brine cavity)
Further consultation is being sought by HMRC with parties representing the waste management industries, on 3 key issues:
* The definition of ‘naturally occurring’ rocks and soils in Group 1.
* More objective evidential requirements, including those relating to ‘incidental’ amounts of non-qualifying material in a load that is essentially of qualifying material; and
* Guidance on the conditions that must be met where lower rated waste, used for the purposes of filling existing quarries, qualifies for exemption from landfill tax.
A lack of clarity on these issues has essentially placed most of the onus on landfill operators to implement this legislation. Within its briefing, HMRC stated that if it discovered ‘instances where landfill operators do not hold appropriate evidence to support the lower rate of Landfill Tax, enforced assessments will be made to bring the under-declared tax into charge. Penalties may also be applicable in such cases’. It also threatened that ‘Landfill site operators who deliberately fail to correct an under-declaration of Landfill Tax may be liable to a civil penalty for dishonest evasion, a civil penalty for deliberate inaccuracy or criminal prosecution.’
So it is clear that when the HMRC does issue its final revised guidance this year, that there will be no loopholes as exist currently, that allow some unscrupulous waste disposers to take advantage of this lack of clarity.
As indicated in the 2013 draft guidance, most trommel fines include a variety of materials derived from a number of different sources and will only be liable for tax at the lower rate if:
* The fines comply with the materials categories listed in the 2011 Order (save for a small amount of other material substantially inert material which cannot be easily removed)
* The relevant conditions of the 2011 Order are met
* Appropriate evidence can be provided to demonstrate eligibility to the lower rate.
For most trommel fines, the lower rate tax will only be applicable if the producer can demonstrate the materials comprise predominantly of naturally occurring rocks and soil (Group 1 Materials) or glass, ceramics or concrete (Group 2 Materials). Although, as mentioned, the HMRC is still refining its’ definition of “naturally occurring rocks and soil”, it is most likely that the presence of anything other than minor amounts of other contaminants means that the fines will be taxed at the standard rate. For most operators this means that their landfill tax bill for this type of waste will increase from £2.50/tonne to £80/tonne during 2014 – a 32 fold increase!
So an operator producing, for example, 10,000tonnes /year of trommel fines (i.e. 40 tonnes per day) could see their landfill tax bill increase from £25,000/year to £800,000/year during 2014.
h2. So how can this be mitigated?
*Further separation of the fines* – Assuming trommel fines typically comprise 80% material that, if separated, would qualify for the lower tax rate, simply separating this from the other “non-qualifying material” could dramatically reduce the annual landfill tax bills. Such savings surely mean the industry has little choice but to invest in this additional technology or endeavour to pass the full additional cost onto its customers?
*Using existing technology* – The technology is already out there. Trommel fines can be further treated to remove these “other contaminants” thereby ensuring that the resultant material is comprised predominantly of qualifying materials such as naturally occurring rock/soil, fragments of concrete, brick or other ceramics.
As the material has already been sorted by size, the removal of the other contaminants can only be achieved using a combination of magnetic/eddy current separation (to remove both ferrous and non-ferrous metals) and density separation (to remove fragments of paper, plastic, food waste, etc).
Siltbuster has been offering this type of technology to the recycling industry for the past five years (principally for the recovery of naturally occurring minerals from gully and sweeper waste) in the form of our Gritbuster washing systems. The application of this technology to the treatment of trommel fines is therefore a logical next step in its evolution and the company is currently conducting a number of pilot schemes. Whilst the capital outlay is not insignificant, the potential savings in landfill tax will be hugely significant, once HMRC start insisting on rigorous compliance with this legislation.
The pilot schemes mentioned also bear this out. An operator producing 10,000tonnes/year of trommel fines (i.e. 40tonnes per day) could see their landfill tax bill increase from £25,000/year to £800,000/year during 2014. Assuming trommel fines typically comprise 80% of material that simply separating this from the other “non-qualifying material” could reduce the landfill tax bill to £160,000/year – a tax saving of £640,000/year.
The benefits of such an investment have been further enhanced by the publication of the revised WRAP Protocol on the recovery of aggregates from waste. This now allows mineral recovered from the mechanical (and/or biological) treatment of trommel fines and other waste streams to be used in the production of aggregates. Thereby allowing a significant proportion of the trommel fines currently being landfilled to be recovered through a quality controlled process and sold for beneficial use as recovered aggregate.
HMRC has clearly showed its intent – and all indications are that HMRC will stiffen their position.
Like it or not, this tax was introduced as a means of encouraging the diversion of waste from landfill, which has to be beneficial to society as a whole.
What now seems likely, during 2014, is the inevitable enforcement of this legislation on the disposal of trommel fines which will undoubtedly encourage the industry to at least further process this material to minimise the landfill tax or, even more beneficially, encourage its recovery as an aggregate. Either way, the waste management industry has no choice but to sharpen up its act with respect to the treatment and disposal of this waste stream and ensure they have robust practices in place to keep landfill disposal costs under control and to comply with the law.Back