Trommel Fines is the product resulting from waste transfer sites when they receive material and put it through large cylinders (‘trommels’) which then separate the material by size. Usually anything below 40mm in diameter is taken out and this often consists of soil, paper, plastic, wood, fragments of metal and other detritus. The material is too small for effective recycling and is termed ‘Trommel Fine’. From a perspective of actually depositing this type of waste, there are, as there are with most things, tax implications.
For the past three or four years, the relevant legislation was the 2011 Landfill Tax (Qualifying Materials) Order which created a huge tax disparity between inert and non-inert material in that a lower landfill tax rate was applicable to certain groups of inert materials. There was however a significant leap to the standard rate of tax per tonne for the non-inert material. Landfill operators had to know the system and were effectively left with the issue which carried serious risks. For most Trommel Fines therefore the lower rate tax would only be applicable if the producer could demonstrate that the materials comprised predominantly of naturally occurring rocks and soil or glass, ceramics or concrete.
HMRC adopted the position that if it discovered instances where landfill operators did not hold the appropriate evidence to support the lower rate of Landfill Tax then enforced assessments would be made to bring the under-declared tax into charge and penalties may also be applicable. Moreover, deliberate failure to correct an under-declaration of Landfill Tax could result in civil penalties for dishonest evasion, a civil penalty for deliberate inaccuracy or even criminal prosecution.
Uncertainty reigned and a commitment to technology for businesses to further separate and extract was the sensible, albeit costly option. The costs would likely be passed down the chain from the landfill sites to the producers.
The Trommel Fines issue appears, ostensibly, to have been remedied for the most part by the introduction of Loss On Ignition Testing (LOI) on 1 April 2015 which followed the implementation of the Landfill Tax (Qualifying Fines) Order 2015.
Landfill operators will be required to conduct laboratory tests on every 1,000 tonnes of waste they receive from an individual customer by heating a small sample. This test will show how much ‘non-inert’ material is present and those achieving 15 per cent or less in the first 12 months will be eligible for the lower £2.60 rate of tax, rather than the £82.60 standard rate.. This qualifying percentage will fall to 10 per cent or less from April 2016.
Reportedly the Trade Associations are, overall, quite pleased with the development with some indicating that HMRC has actually listened to the industry and that there is now a degree of clarity and certainty following three years of confusion. Moreover the 15 per cent LOI threshold allows operators time to invest in the right processing equipment before the stricter 10 per cent threshold is introduced.
Critics however point out that the proposed laboratory tests may be inconsistent and offer differing results on each test. In addition, the sampling process begs the question as to whether a representative sample has been obtained and whether the process will be opened up to the disingenuous activities that LOI is designed to eliminate. There are responsibilities along the chain and ultimately the landfill operator needs to be trustworthy. The duty of care for the prevention of environmental offences is essentially a self-regulating system which is based on good business practice. It places a duty on anyone who in any way has a responsibility for controlled waste to ensure that it is managed properly and recovered or disposed of safely and in such a way as to protect the environment, aside from HMRC considerations.
Whilst producers may be satisfied that their Trommel Fines are below the thresholds, the buck ultimately stops with the operators. It might be the case for example that operators may decide that they are not accepting certain types of waste. Alternatively the operators may simply charge the standard rate of tax on Trommel Fines because it is the safest option which would avoid the evidencing of lower tax rate applicability. We have seen that the risk is that they charge a lower rate and then find themselves being charged at the higher rate by HMRC who could pursue them through civil or even criminal processes.
In tandem with these concerns, the possibility of ‘waste tourism’ that different approaches to Landfill Tax might bring should be a concern. Scotland has already indicated that there is no plan to introduce LOI for another year at least. The rates may also be subject to different levels by way of the same devolved powers. Could we see an increase in shipments of Trommel Fines and other waste over the border into Scotland because it is cheaper to do so? Could Wales adopt similar approaches?
In light of the taxation issues raised, it might be the case that the unwary and impulsive might be tempted into conduct that would bring them under the microscope of either or both the Environment Agency and HMRC. Who would have thought that smallest of particles could bring such a headache?
If any of the matters covered affect you, or if you have any other concerns or queries which you would wish to discuss with us, please contact us in confidence for an initial no obligation discussion.
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