HM Revenue & Customs (HMRC) has released further details of the loss on ignition (LOI) tests that will apply to fines from mechanical treatment plants that are destined for landfill from 1 April 2015.

It is thought that this testing to determine biological content, confirmed in central government’s Autumn Statement, will assist mechanical treatment plant and landfill site operators in England, Wales and Northern Ireland determine the correct Landfill Tax liability of fines – whether they should be taxed at £2.50 a tonne (the lower rate for ‘less polluting’ waste), or £80 a tonne (the current higher rate – though this is set to rise in line with the Retail Price Index from April 2015). Scotland is not covered by this regime, as it will have its own Landfill Tax from April 2015.

Specifications for the testing regime

The ‘Landfill tax: compliance work in relation to lower rate’ document, released on Wednesday (10 December), prescribes the detailed specifications for the testing regime ‘to ensure that waste going to landfill is consistently declared at the prescribed rate, reducing the scope for errors and deliberate mis-description’.

Definitive legislation on the testing protocol, best practice guidance and standard documentation will be introduced in spring 2015, but HMRC has revealed that only fines with 10 per cent or less biodegradable and/or combustible content will be considered eligible for the lower tax rate and that the LOI testing temperature will be set at 440° Celsius.

However, following stakeholder requests for a ‘transitional period’ to allow for changes in operating procedures to take effect, government has agreed to a 15 per cent biodegradable and/or combustible content threshold until April 2016.

Any fines surpassing the 10 per cent threshold following this date will be subject to the higher level of Landfill Tax.

This measure will affect the operators of the 450 mechanical treatment plants and 200 registered landfill site operators in England, Wales and Northern Ireland, as well as any other customers upon whom additional costs or changes in tax liability may be passed. However, since the test will apply at the point the waste is tipped to landfill, the main additional administrative burdens will be on operators of landfill sites.

Issues over discrepancies

Government also released the summary of responses to its consultation on the LOI regime on Wednesday (10 December), many of which outlined concerns over the right to appeal test results.

As such, HMRC has revealed that if a test result is appealed, and a second test on the same composite sample is undertaken, the lower LOI rate achieved will be taken as the applicable result (regardless of which test it came from).

Further to this, about a quarter of written responses expressed some concern about the fact that mixed waste inputs were to be excluded from the scope of the testing regime.

Consequently, HMRC has agreed that qualifying fines must predominantly comprise of materials listed in Group 1 (rocks and soils) and Group 2 (ceramic or concrete materials of the Landfill Tax (Qualifying Material) Order 2011, although there may be a ‘small amount’ of non-qualifying standard-rated material, which must not have been ‘deliberately or artificially blended or added to the qualifying material(s) after or in connection with removal from its originating site’.

Materials comprising wholly Group 1 and 2 materials will not be subject to the LOI testing regime, even if has been subjected to ‘some mechanical screening’.

Concerns were expressed by others that, because of the volume of samples, it may not be practical to store these for six months as originally proposed (and that materials would also degrade within this time period, meaning any LOI retests would not produce the same result as the original one), so government has agreed to halve the storage period to three months.

HMRC will also set a standard procedure for testing to reduce the amount of alleged discrepancies in results and be given an additional power to direct landfill site operators to arrange for additional testing of materials in order to ensure the correct liability of fines is determined.

Costs

Government estimates that businesses may incur one-off costs to prepare for the LOI testing regime, but that these will be ‘negligible’. Costs may arise from: IT system changes; LOI sampling training for site staff; and finding and setting up suitable storage facilities.

It also estimates that the cost of an LOI test on a sample, which will be carried out by testing laboratories, will be roughly £10. The test rate minimum should be one in every thousand tonnes, according to the guidance, and including possible additional tests for failed samples and small producers, HMRC expects that the continuing total costs paid by UK businesses would likely be between £50,000 and £100,000.

A detailed process for selecting a representative LOI sample will be specified in upcoming legislation.

Read the ‘Landfill tax: compliance work in relation to lower rate’ document or the government response to the consultation.