Sarah Hey

NW in 2019 | Plan or pay the penalty

Construction is booming and the hot topic next year for ground-related professionals will be management of earthworks, writes Sarah Hey of Hydrock, as under new landfill tax rules, HMRC can recover tax on the reuse of excavated materials unless the proper paperwork is in place.

For materials movements of 10,000 tonnes, the bill could be as much as £1m. 

Implications from changes to landfill tax rules, introduced from 1 April 2018, have flown under the radar for the property sector. Legislation normally associated with unscrupulous activity has become entwined with the reuse of excavated materials on development sites.

A revised and strengthened definition of waste set to be introduced in 2019 by overseeing organisation CL:AIRE (Contaminated Land: Applications in Real Environments) will bring this previously unheralded issue into the spotlight. This code of practice has been in place since 2008 and requires developers to prove that materials reused within a construction project are not waste. Use of this code is common, but is certainly not being used on every project, partly due to the perception that it is voluntary. The new tax rules will force developers, their contractors and consultants, to follow the guidance or risk significant tax payments to HMRC.

Many construction projects are not following the correct procedures when reusing excavated materials on site. This is also because, prior to the new tax rules, the potential penalties have not proven to be a sufficient deterrent. However, the change to the rules mean that HMRC can recover landfill tax on soils – now classified as ‘waste’ as soon as they are placed on another part of the site– if the appropriate materials management plan, permit or exemption is not in place. The material is essentially defined as ‘illegally deposited waste’.

The cost to get the paperwork right is a fraction of the cost that a developer could face with respect to landfill tax. By way of example, with tax at £88.95 a tonne in England and £133.45 a tonne in Wales, a developer could be looking at paying up to or over £1m for the movement of 10,000 tonnes of material during a project.  

The solution is relatively simple and well established. Any proposed development site should be subject to a desk-study to highlight potential contaminant threats, followed by ground investigation and risk assessment and the development of a remediation strategy to establish how the site can be de-risked for development. The stage often overlooked, which will attract the attention of HMRC, is liaising with the regulators for approval, drawing all the plans together into a formalised materials plan, and seeking review by an independent ‘qualified person’. The declaration by the qualified person is then submitted to CL:AIRE.

The process is not intended to be another regulatory burden and may actually help developers to better control costs, programme and ensure a smoother project sign-off. Developers will need to pay closer attention to their processes in 2019, to avoid unintentionally exposing themselves to significant charges from HMRC thanks to this unexpected twist in waste legislation.

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