In order to avoid imposing new costs on land reclamation projects, the previous Government agreed that there should be an exemption from the £7 per tonne landfill tax for material excavated from contaminated sites. To qualify, developers must obtain a certificate from Customs stating the tonnage of material and the landfill site to which it is destined.
Customs' interpretation of the law has led to disputes with construction firms. It had been expected that all contaminated material removed for the purpose of "facilitating development" would be exempt from tax. But in several cases Customs levied landfill tax on contaminated soil removed from building "footings" on the grounds that it would have had to be removed anyway, and that the operation amounted to "construction", at the start of which the exemption expires.
In May 1997, some of the industry's concerns were alleviated in a revised Customs information note (ENDS Report 268, pp 38-39 ). "If we are satisfied that what is taking place is reclamation, then the waste arising from that work would all be exempt, even though it would have been removed in any case as part of the later construction," the note said.
However, construction firms continue to report difficulties in gaining tax exemption for contaminated soils. "There is still tremendous dissatisfaction with how Customs are behaving," according to Liz Bridge, Director of Taxation at the Construction Confederation.
Elements of Customs' policy on contaminated soil were the subject of a recent hearing by the VAT and Duties Tribunal on which a decision was released in November. The dispute concerned a Taylor Woodrow project in Bury which involved reclamation of derelict land, including an unlicensed tip, as part of a new retail development.
Between 1970 and 1973, waste had been tipped in mounds and covered with topsoil. According to the tribunal, the material apparently included household refuse. Taylor Woodrow decided to process the mounds to remove inert material and consign the remaining 10,800 tonnes to landfill - for which the tax bill would be around £75,000.
Originally, Customs gave the project an exemption. But, after visiting the site in December 1996, an officer raised objections because "it became apparent that the waste was being removed from the site because of its unsuitability due to the risk of settlement... I take the view that this waste does not qualify for the exemption because you would have had to remove it anyway in the course of the development due to it being unsuitable."
Taylor Woodrow requested a review of the decision. The review, issued in May 1997, upheld the officer's conclusions. And Customs' policy here was broadly consistent with its revised information note, issued the same month.
Importantly, in its decision on the Bury case, the tribunal took issue with the following points in the revised note:
On the first point, the tribunal concluded that Customs was setting excessively restrictive rules. There is "nothing in the legislation [which] requires the reclamation to be necessary in order to develop the land," the tribunal found. "Nothing in the legislation requires reclamation to be the only or primary object or purpose of the work."
On the second point, the tribunal agreed with the appellants that this was also imposing "a primary motive test which is not supported by the legislation."
The tribunal noted that section 43B(8)(a) of the Finance Act 1996 requires that, for an exemption to be permitted, the reclamation must constitute or include cleaning the land of pollutants which are causing harm or have the potential to do so. On this point, it was satisfied that the mounds of refuse did indeed have such potential.
However, section 43B(8)(b) sets another condition: that the "pollutants would (unless cleared) prevent the object concerned being fulfilled." In the Bury case, the tribunal decided that the relevant "object" was "facilitating development" - as defined in section 43B(7).
The tribunal concluded, therefore, that Taylor Woodrow needed only to demonstrate that removal of the pollutants was necessary to "facilitate development". This is a less onerous condition than that set by Customs requiring developers to demonstrate that failing to remove the pollutants "would prevent the land being put to the intended use."
The tribunal decided that the condition on facilitating development is satisfied if "current best practice requires that they [the pollutants] be removed." In the Bury case, it concluded that removing the refuse heaps was indeed best practice, because the alternative of moving the material around the site was likely to increase its hazardous properties.
The tribunal upheld the appeal, reinstated the certificate of tax exemption and awarded costs against Customs. "The reason why the mound material was removed from the site was not its inadequate strength for fill," the tribunal concluded, "but because it was polluted and/or had the potential to pollute...Its removal facilitated development of the land and such removal was, in our view, necessary for that purpose."
In 1997, ICI used 52,000 tonnes of the material, known as Andricite, in landfill engineering. Andricite, or anhydrous calcium sulphate, is a powder which solidifies and becomes impermeable on reaction with water. It is a by-product of hydrogen fluoride manufacture. ICI lines each landfill cell at Randle Island with 1.5 metres of Andricite. The cells are used for wastes containing heavy metals, including mercury.
ICI has traditionally sold some of the Andricite it produces. But it submitted that it had proved more cost-effective to use the material in landfill engineering, even though alternatives such as pulverised fuel ash (PFA) could be used.
In 1996, Customs advised ICI that "Andricite is a waste material that is being put to landfill and is liable to tax." It cited the Finance Act 1996, which states that disposal of waste is taking place "if the person making the disposal does so with the intention of discarding the material."
In its internal accounts, ICI refers to the Andricite used in the landfill as "waste". However, the tribunal expressed itself "quite satisfied" that the company does not have the intention of disposing of the material used in landfill engineering as waste - and that it could not, therefore, be subject to landfill tax.
The tribunal's key conclusion leading to its decision was that the Andricite used to engineer landfill cells, "whether bought from third parties or produced internally, cannot be considered as waste."
The decision cannot be translated directly to other landfill situations, since ICI's operation is unusual. However, some in the landfill industry are already claiming a precedent that construction and demolition waste used in landfill engineering should likewise be declared exempt.
In reality, though, unlike ICI's argument on Andricite, it would be difficult to claim that most inert wastes used in landfill engineering were not disposed of "with the intention of discarding the material."
Another avenue which some in the waste industry might be tempted to explore is that material such as PFA or cement used to stabilise metal-bearing wastes might be exempt from landfill tax. But, unlike ICI's case, such treatment usually takes place prior to landfill - and everything arriving at the landfill is considered to be waste and thus probably subject to tax.