Sam Wardleworth, senior associate at law firm Pinsent Masons, said that landfill tax can be “difficult for businesses to report correctly” because parts of the regime are “complex and difficult to apply in practice”.
This has resulted in HMRC collecting £281m in unpaid tax in the past year alone, according to the law firm.
In particular, Wardleworth said HMRC’s “literal interpretation of technical language describing waste materials means that in some instances innocent mistakes such as using the wrong word on a form can, in HMRC’s view, increase the liability of waste by 30 times and result in significant penalties”.
He said that a common cause for confusion for businesses is the “unhelpful interaction” between landfill tax and the environmental regime, with the Environment Agency and HMRC using different categorisations and labelling for waste.
“This is particularly concerning in instances where industry jargon may be commonly used to describe a qualifying material”, he said, highlighting that this can result in a rate of £102.10 per tonne as opposed to £3.25, despite the nature of the waste material being the same.
Previously he said that instances of ambiguity have been resolved through subsequent changes but he said the landfill tax regime remains “open for interpretation” in many places.
As such, Wardleworth said that unifying the environmental regime and landfill tax system is “well overdue” and said that doing so would improve compliance and save money for businesses and time for HMRC.
“Landfill tax errors might be amongst the most costly errors in the entire UK tax system. If you’re disposing of 10,000 tons of waste, the wrong description can cost almost a million pounds in extra tax and fines”, Wardleworth said.
“Making sure employees and drivers fill in forms correctly to ensure the correct rate of tax is payable can be very difficult in practice. There is a level of subjectivity in what constitutes an accurate description of material and HMRC’s interpretation is strict. Businesses unsure of their intake procedures or concerned that they may have made errors like this should take professional advice to deal with the investigation and any appeals that are necessary.”
An HMRC spokesperson said: “We conduct site visits, help businesses get their tax right through early interventions, use data analysis and work closely with other government departments to tackle Landfill Tax non-compliance.
“We’ve secured almost £1 billion through tackling this problem in the last five years, money that funds vital public services that would otherwise have gone uncollected. We’ve also successfully prevented incorrect repayment claims worth more than £1.5 billion since 2017.
“We’re committed to working with other agencies and increasing our resources to further help combat wider waste crime.”