Judith Kelly OBE, HM Revenue & Custom’s deputy director of environmental tax policy, sets out its response to Landfill Tax evasion and tax non-compliance in the waste sector… progress has been good, but awareness still needs to be raised
Landfill Tax was introduced in 1996, as a disincentive to landfilling waste and to encourage the switch to more sustainable waste management. The tax supports the UK’s waste policy and contributed more than £919m to the public finances in 2015-16.
Landfill Tax is due on the disposal of waste at permitted landfill sites in England, Wales and Northern Ireland; it was devolved to Scotland from 1 April 2015. The tax is collected from operators or controllers of a landfill site based upon the weight and type of waste material and there are two rates – a standard rate of £84.40 per tonne and a lower rate of £2.65 per tonne. The latter applies to less polluting wastes such as rock, brick and sub-soil. To provide long-term certainty to the industry, the Government announced in Budget 2016 that rates will increase in line with the Retail Prices Index to disposals made, or treated as made at relevant landfill sites, on or after 1 April 2017 and on or after 1 April 2018.
Between 2007 and 2014 the standard rate of Landfill Tax increased from £24 per tonne to £80 per tonne, creating a strong incentive to divert waste from landfill to more sustainable waste management. The amount of waste sent to landfill has decreased by over 50 percent and household recycling has increased by 70 percent since the tax was introduced. This has led to a major shift in waste management across the UK, incentivised by a range of government policies.
Landfill Tax Evasion
Tackling tax evasion is a top priority for HMRC – it damages legitimate waste operators and undermines the environmental objectives of Landfill Tax. While the vast majority of taxpayers pay the right amount of tax at the right time, the industry has raised concerns about non-compliance in the waste sector, driven in part by the potential profits that can be made from the misdescription and under-declaration of waste.
In response, HMRC launched a Landfill Tax Compliance Strategy last July. It has been developed to complement the joint Defra and Environment Agency Waste Crime Action Plan, and subsequent measures introduced by Defra in 2015 to take speedier and tougher enforcement action against waste criminals and poor performers.
The strategy adopts the same principles as HMRC’s broader compliance strategy of “promote, prevent, respond” by:
- promoting compliance – making it easier for businesses to pay the right tax
- preventing tax losses – making it harder to make mistakes or to deliberately cheat
- responding to those who cheat – increasing the impact of enforcement.
To help businesses comply, HMRC published a revised Landfill Tax notice with expanded guidance on the lower rate and the treatment of hazardous waste. The guidance on the Loss on Ignition (LOI) testing regime, which came into effect on 1 April 2015 was also updated. The LOI regime was introduced to help landfill site operators determine the Landfill Tax liability of waste “fines” – the residual waste material from mechanical treatment processes. This was in response to industry calls for an objective means of determining the rate of Landfill Tax on waste fines.
Responding To Cheats
Since the launch of the strategy we have significantly increased the number of risk-based compliance interventions across the waste supply chain. Using a range of different compliance interventions, we are assessing the accuracy of Landfill Tax and other tax declarations, including compliance with the LOI testing regime and hazardous waste guidance.
A key strand of our enforcement and compliance response has been the launch of a waste sector taskforce. HMRC taskforces bring together expertise from different areas of tax for intense bursts of activity targeted at specific sectors and locations where there is evidence of a risk of tax evasion and fraud. Taskforces consider all tax risks including Corporation Tax, VAT and Income Tax, as well as Landfill Tax.
The taskforce uses intelligence from environment agencies and other sources to target businesses operating in the waste sector, including waste transfer stations, skip hire, carriers, landfill sites and individuals profiteering from illegal waste activities. In 2015-16 the waste sector taskforce targeted 250 businesses across the supply chain and a further 200 businesses will be targeted in 2016-17.
At Budget 2016 the Government announced additional funding over the next five years to increase HMRC’s compliance activity to tackle tax evasion in the waste sector. The investment will enable us to increase our collaborative work with other enforcement agencies, following intelligence leads that point to the involvement of serious, organised criminals to counter misdescription of waste. We will also be carrying out more unannounced site visits and will trace waste through the supply chain, penalising those who under-declare or cause under-declarations.
Landfill Tax Consultation
In May 2016, HMRC published a Landfill Tax consultation, “Landfill Tax: improving clarity and certainty for tax payers” on proposals to amend the definition of a taxable disposal and for information on the disposal of certain types of hazardous material.
The purpose of the consultation is to seek views on the proposals to put the definition of a taxable disposal for Landfill Tax purposes beyond doubt, without altering the scope of the tax; and gather information and receive views on hazardous waste falling within the scope of the Qualifying Material Order.
The consultation closes on 18 August and we are keen to receive views from a wide range of stakeholders. We would particularly like to hear from operators of landfill sites, waste producers – including energy generators – and other waste industry interested groups, including representative bodies in England, Wales and Northern Ireland.
If the Government decides to make legislative changes it will, in line with established practice, publish draft legislation in advance of finalising the Finance Bill.
While we have made good progress we are not complacent. We want to continue working closely with the waste management industry and their trade body representatives to enhance our understanding of the scale of the problem, and the weaknesses in the system that present opportunities for non-compliance.
We’re also keen to raise awareness of Landfill Tax risks, and potential sanctions and penalties that businesses can face if they cheat the system, as well as encourage the industry to report cases of non-compliance.
Reporting Tax Evasion
If you think someone is evading tax you can report tax fraud online or by telephone:
Tax Evasion Hotline Telephone: 0800 788 887
If you want to report waste crime anonymously call Crimestoppers on 0800 555 111 or online.