Appropriately Decided

JEREMY DE SOUZA reports two recent decisions on landfill tax and the climate change levy .

LANDFILL TAX WAS introduced in 1996, but disputes rarely come before the tribunals, and before the courts very infrequently. Commissioners of Customs and Excise v Parkwood Landfill Ltd [2002] STC 1536 is the first to reach the Court of Appeal.

Landfill tax is imposed at the stage at which waste is delivered to a landfill site registered under the Environmental Protection Act 1990. The accountable party is the holder of the waste disposal licence for that site, in this case Parkwood Landfill Ltd.

The facts are somewhat complex. Sheffield City Council held a stake in Parkwood Recycling Ltd. Under an agreement between those parties, the council delivered waste to the recycling company, paying it a fee calculated on a weight basis. The company divided this waste into recyclable material and waste material. The latter was taken to landfill, and its taxable status was not disputed. The former was divided into aggregates and fines, and resold in recycled form. Parkwood Landfill, an associated company (albeit at arm's length), was one of the purchasers and acquired this material to use for road making and landscaping at its own landfill sites. As the recycling company had no lorries, Parkwood Landfill collected this from the former's premises. Customs claimed tax on that material.

Under section 40(2), Finance Act 1996, for a disposal to be taxable, four elements have to be present:

• it is a disposal of material 'as waste';


• it is made by way of landfill;


• it is made at a landfill site;


• it is made after 30 September 1996 (which was the case).

The key issue was the meaning of the words 'as waste'. The tribunal held in favour of Parkwood Landfill on the basis that, to be waste, the material had to be of 'no use whatsoever'. The Vice-Chancellor (Sir Andrew Morritt) allowed Customs' appeal, inter alia , on the basis that this interpretation was at variance with section 64(1), which provided that the disposal was of this type 'if the person making the disposal does so with the intention of discarding the material'. But the judge was overruled by the Court of Appeal after the application of a purposive test. One of the purposes of imposing the tax was to promote recycling, in order to reduce the amount of waste going to landfill. To tax the material in question would, therefore, be contrary to that purpose.

Fortuitously timed

The determination was made on 28 November 2002 and was extremely well timed.

In the pre-Budget report the previous day, the Chancellor had announced that the rate of landfill tax on ordinary waste was to be increased from the rate of £15 a tonne scheduled for 2004-05 by annual increments of at least £3 until the figure of £35 had been reached. This will put pressure on council tax levels if local authorities do not find alternative methods of waste disposal, of which recycling is very much the preferred method under currently available technologies.

Customs' stance in the Parkway case amounted to a positive hindrance to local authorities which tried to increase the proportion of waste going to recycling.

The reasons underlying this are to be found in the Downing Street Strategy Unit's 'Waste Not, Want Not' (released on 3 December 2002):

• with 81 per cent of waste going to landfill, the current rates of landfill tax were not acting as an incentive to local authorities to dispose of waste by alternative methods, and in particular were not promoting recycling, which accounted for only 11 per cent;


• the United Kingdom was in grave danger of non-compliance with its targets for 2010, 2013 and 2020 under the Landfill Directive, giving rise to the possibility of annual fines of £180 million; and


• as landfill sites produced some 25 per cent of the discharge of methane, progress on this score would also assist in the attainment of the country's climate change targets.

Climate change levy

The VAT tribunal decision in Oval (717) Ltd (17875) concerned Bristol University which, in 1994, in common with a number of other educational charities, asked its suppliers of fuel and power (in this case, gas) to its student accommodation to sell through a wholly owned trading subsidiary, with which it had entered into a prepayment arrangement. At that time, the supply of domestic gas and electricity was zero rated for VAT, but was intended to be made standard rated after a period of assessment at eight per cent.

Change of plan

The rate progression proposed by the then Conservative Government never took place. In 1997, Labour substituted a permanent rate of five per cent. In 2001, however, an unforeseen complication arose the introduction of climate change levy. Although the new tax preserved preferential status for domestic users (which continued to encompass student accommodation) in the similar statutory terms, as far as Bristol University's trading company (the taxpayer in this VAT appeal) was concerned, there was a problem.

Climate change levy did not operate on the cascade basis familiar in relation to VAT. Thus, whereas for the purposes of VAT it did not matter whether the supply from the gas utility (Kinetica in this case) was charged at five per cent or 17.5 per cent, because it was recoverable as input tax against the output to the university at five per cent, for climate change levy it was critical.

Unless the privileged status applied up the supply chain, exemption from the levy was not available, even though it would have been had Kinetica supplied either the students direct or, it seems, the university as a person 'sufficiently close' to them.

Form of challenge

Oval (717) Ltd chose to contest the issue not through the climate change levy appeals procedures, but by challenging the VAT status of its purchases from Kinetica. It argued that the Court of Appeal's decision on the building works' zero-rating case, Commissioners of Customs and Excise v St Dunstan's Educational Foundation [1999] STC 381, could be called in aid to move the preferential VAT status down the supply chain from the final consumer, who alone had been accorded this privilege by the European Court of Justice in European Community Commission v United Kingdom [1988] STC 456. The tribunal rejected this submission.

The Court of Appeal's decision, although consistent with that in the infraction proceedings, was not to be treated as authority for any proposition which departed from the purposes of the legislation enacted following those infraction proceedings.

A possible solution?

The problem underlying this case is that climate change levy bites only once, on the sale by a utility to a non-utility. Problems can, and do, arise where a landlord is interposed between the utility and a domestic consumer. Where all the tenants are exempt, it is acceptable for the landlord to certify their exempt status to the utility on their behalf, so that they can receive exempt supplies.

Paragraph 23(3) of Schedule 6 to the Finance Act 2000, does, however, permit Customs to register deemed utilities and they said in March 2001, in Technical Briefing No 8, that they would be prepared to extend this facility to landlords with mixed status tenants. Because of the 'sufficiently close' status of the university for the purposes of this particular legislation, it seems unlikely that Customs would have required Bristol University to apply for this status had Kinetica been supplying the university direct, rather than through its trading subsidiary.

In such circumstances, it may well be, however, that Oval (717) Ltd, although not a landlord, could apply for, and be granted deemed utility status, and get round its current difficulty in that way.

Jeremy de Souza is a consultant to White & Bowker.

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