Customs revises landfill tax rules for contaminated land

The building industry has won an important concession from Customs & Excise over the application of landfill tax to contaminated soil removed from development projects. But the industry claims that this will not be enough to remove the disincentive created by the tax regime for the redevelopment of brownfield sites.

The dispute between the Building Employers Confederation (BEC) and Customs was revealed by ENDS in February. Under the tax regime, introduced last October, it had been expected that all contaminated material removed from a site for the purpose of "facilitating development" would be exempt from the tax. However, the BEC identified several cases where Customs officers had required payment of landfill tax at £7 per tonne on contaminated soil removed from building "footings" and service trenches 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 (ENDS Report 265, pp 9-10 ).

The BEC backed up its campaign against this interpretation of the tax legislation by threatening legal action, and in May secured a partial victory. Customs has now clarified its policy in a revised information note on contaminated land.1Specifically addressing the BEC's complaint, the note says that in many reclamation projects "spoil is removed in order to remove pollutants which would have to have been excavated in any case to level land or to dig foundations or service trenches. 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."

However, the note has left the BEC dissatisfied on two points. One is its insistence that, where the levels of pollutants would prevent the redevelopment of only part of a site but not others - for example, where they were above threshold values for gardens but not those for buildings - then only the wastes whose removal is strictly necessary to allow the development to proceed will be exempt from landfill tax.

Developers will be expected to demonstrate that removal of pollutants is necessary by furnishing Customs with relevant planning conditions, reference to "recognised" guidance, and any correspondence with the environment agencies or local environmental health departments.

Liz Bridge, the BEC's Director of Taxation, argues that this approach will in practice discourage the redevelopment of contaminated sites. When tendering for a contract, builders need certainty about costs and profits, she says, but parcelling up sites in the way envisaged by Customs will create uncertainty and may deter them from tendering at all.

Customs' policy also appears to be at odds with a statement last year by the then Paymaster General, David Heathcoat Amory, that "it is intended that all the waste removed [during reclamation of contaminated sites]..will be exempt.., not just that which is contaminated."

Customs has gone only a little way towards this. It says that, where "small areas" of clean material or land polluted to a level which does not require its removal are dispersed between areas of contamination and it would not be "practicable" to separate these during a reclamation, Customs will consider applications for tax exemption - provided that such wastes amount to less than a quarter of the total waste applied for.

Elsewhere, the note gives as an example a contaminated site being developed for residential use. Normally, exemption would be granted only for the gardens and play areas because only on these are pollutants present above official threshold values. However, if the "vast majority" of the site is to be reclaimed for gardens and play areas, then tax exemption would be granted for the entire site. Critics may feel that Customs is making its policy up as it goes along.

The BEC's second remaining concern is Customs' insistence that tax exemption will not be granted for sites where the levels of pollutants fall below the limits "generally recognised as safe for the intended use of the land," but where they have to be removed because those providing financial backing for a redevelopment demand this.

Customs' rationale for this policy is no doubt that exemption should not be granted simply because of public concerns about contamination hazards. But "in the real world", says Liz Bridge, the policy will act as a blight on redevelopment.

The BEC has won one further concession. Customs has already promised that the exemption will be reviewed in October 1998 in response to complaints by land remediation businesses that it is a disincentive to the use of on-site clean-up technologies. The review will now also consider the effects of the exemption on the reclamation of contaminated land.

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