Environment Tax

Aggregates Levy – New rules will upset developers


Aggregates levy (‘AGL’) has had a difficult life so far. First introduced in 2002 with a lot of input from the quarry industry, many quarry operators then turned on it once they realised the impact it could have and challenged its introduction in the courts over the next decade or so. AGL survived that battle but, after a few more bust-ups, is set to be tightened up.

As an environmental tax, AGL is designed to disincentivise the use of virgin aggregate and encourage the use of recycled material. In many developments, recycling is a good idea anyway – virgin aggregate is expensive so using crushed material from on-site demolition often makes good economic sense. How many times have you been frustrated by motorway contraflows and seen large crushing machines and conveyors in the closed carriageway, processing material excavated from the road into useable, graded, recycled aggregate. Bravo!

In other cases, HMRC is less pleased with the AGL impact of on-site use of aggregate. In particular, they have been concerned at how developers have been able to apply one specific exclusion from AGL.

The law states that material which is returned to the land from where it was won, mixed with nothing more than water, can be excluded from AGL. This is a common sense measure – major developments often come across rock, sand or gravel (i.e. potentially taxable aggregate) in the course of the project and the only alternative to depositing it somewhere on the site might be to transport it cross country or even send it to landfill, neither being environmentally responsible.

But HMRC’s attention has been peaked by the use of borrow pits within or close by to development sites, where aggregate material has been excavated and deposited on the development site AGL free. In their recent consultation into AGL, they stated that this was not the intention of this exclusion, and they plan to change legislation to restrict its availability.

Specifically, HMRC intend to limit AGL exclusion for material returned to its originating site, to cases where the material is used ‘only for a purpose connected to the winning of the aggregate’. In other words, the exclusion will only really be available to quarries where they use such material for roads and other infrastructure. Using extracted material on a construction site will, from the date this change is effective, be subject to AGL at £2 per tonne.

What will this mean in practice? Well, there’s quite a few major infrastructure projects going on or about to start, and this measure really forces them to reconsider their onsite excavations and how they will manage extracted aggregate. Failing to identify this material could attract both a tax liability and a penalty.

It would also be timely to take another look at contractual arrangements too and check how these tax costs would be paid and by whom.

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