Application of landfill tax

At a time when the Chancellor has announced his intention of making substantial increases in the landfill tax, the Court of Appeal has given an important ruling on the application of the tax where waste materials are used for landscaping and road making at landfill sites.

The facts in Parkwood Landfill v Commissioners of Customs and Excise (Court of Appeal, 28 November 2002) were reasonably straightforward.

A wholly owned subsidiary of Parkwood Landfill, Parkwood Recycling, received waste from Sheffield City Council which was then separated into waste for landfilling, and recyclable material which was sorted into aggregates and fines which could be used as a soil substitute. The waste material was taken to the landfill site owned by Parkwood Landfill for deposit, and where the appropriate landfill tax was paid.

Parkwood Landfill also bought a quantity of the recycled material from Parkwood Recycling for use as landscaping and road making at its landfill, and it was accepted that the companies, though associated, operated at commercial arm's length. Customs and Excise held that this material was also subject to the landfill tax.

Parkwood Landfill won an appeal before the VAT and Duties Tribunal, but this decision was overturned by the High Court. It was against that decision that the company appealed.

The decision called for an interpretation of provisions of the Finance Act 1996 which introduced the landfill tax. The key section 40 states that tax is charged on a "taxable disposal" which is defined as a disposal where "(a) it is a disposal of material as waste (b) it is made by way of _landfill (c) it is made at a landfill site and (d) it is made on or after 1st October 1996."

Disposal by way of landfill is defined in section 65 as disposal of material if "(a) it is deposited on the surface of land or a structure set into the surface or (b) it is deposited under the surface of land."

Parkwood Landfill accepted that, according to those definitions, the recycled material was disposed of by way of landfill at a landfill site and after the relevant date, thus satisfying conditions (b), (c) and d). But it argued that when it made the disposal the material was not "waste", and therefore the tax should not apply.

The term "waste" is also defined in the Act under section 65, which states that a disposal of material is a disposal of waste "if the persons making the disposal does so with the intention if discarding the material." The section added that it was irrelevant that the person making _the disposal could benefit from the material.

Customs accepted that since Parkwood Landfill was making a beneficial use of the material it was not being disposed of as waste. However, it argued that the material had originally been discarded as waste by Sheffield City Council, and there was nothing in section 40 which implied that all the conditions in the section had to be satisfied by the same person at the same time.

Before the Court of Appeal, counsel for Customs argued that the scheme of the legislation applied the landfill tax to all _deposited materials going to landfill whatever form they took, and it therefore did not matter whether or not the disposal comprised recycled material.

The Court of Appeal disagreed with this interpretation, though it was essentially one which had been adopted by the High Court in the only previous decision on the landfill tax, the Darfish case in 2000.

The Court noted that one problem with the interpretation was that it required the landfill operator to know the history of the material which he was using, and whether or not it had originally been discarded. That may have been clear in this case, but there would be situations where tracing original intention was impossible. It was argued by the Commissioners that such cases were at the margin, and for the purposes of the appeal the Court was prepared to accept that would be the case.

The Court's starting point was to look at the purposes of the landfill tax. According to the 1995 White Paper Making Waste Work, it was clear that one of its main purposes was to reduce _waste going to landfill and to promote recycling.

According to Lord Justice Aldous, "The tax is a landfill tax, not a landfill and recycling tax. The tax is to be paid when waste material is disposed by way of landfill in a landfill site; not on waste material (e.g. fines) which has been recycled (e.g. into blocks) which may be used in a landfill site (e.g. to build a wall or hardstanding)."

The contrary interpretation of the Commissioners would, according to the Court, have led to a result which must have been contrary to Parliamentary intention. A landfill company which used recycled material for site engineering or other purposes would pay landfill tax, but if it used virgin material it would not.

Clearly one of the Commissioners' concerns was the possibility of tax avoidance. They argued that the interpretation favoured by the Court would allow the possibility of using intermediaries to buy material for use on landfill and thus avoid the tax, whereas if someone took soil directly to a landfill for site engineering tax would be chargeable.

The Court of Appeal disagreed that the insertion of an intermediary was critical. The critical factor was the intention of the disposer at the site itself: "the tax bites upon the person who discards not who recycles."

Nevertheless, one consequence of the Parkwood case could well be an increase in landscaping and engineering works at landfill sites, and it will necessary for Customs to be satisfied that these are not sham operations designed to avoid tax.

One notable feature of the decision was the extent to which the Court avoided getting embroiled in the extensive decisions of the European Court of Justice on the meaning of "waste", where the key term "discard" is also used in the legislative _definitions.

The European Court has adopted a generous interpretation of the term by looking at the overall environmental context of EU legislation, and can include waste material sent for recycling (ENDS Report 328, pp 55-56 ). In the Parkwood case, the Court of Appeal treated the _landfill tax provisions as a self-contained legislative structure which included as one of its aims the promotion of _recycling.

Richard Macrory, Professor of Environmental Law, University College, London

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