Tackling climate change with environmental tax - Likely changes to aggregates levy (‘AGL’) from 1 April 2023

AGL is a tax on the commercial exploitation of rock, sand and gravel and is designed to encourage the use of less environmentally damaging materials. Since its introduction in 2002, AGL has endured a series of challenges, including whether it was lawfully introduced in the first instance. More recently, HMRC undertook a consultation into some of the exemptions that apply to aggregate material extracted in certain circumstances, resulting in the publication of draft legislation changes on 20^th July.

The draft changes are focused on making two fundamental changes to the way AGL is applied.

Firstly, in response to extensive lobbying by utilities, the revised changes to Part 2 of FA 2001 aim to introduce a broader exemption for material that arises unavoidably as a by-product from building or improving structures and infrastructure in the utilities and transport sectors. This will allow a raft of more complicated and detailed exemptions to be removed and will hopefully provide clarity for utilities when they consider which of their activities are subject to the levy.

The task facing utilities now is to consider which works will fall into the new exemption (probably the vast majority) and is there any residual exposure for works that are already being undertaken.

The second change is likely to be welcomed by the quarry industry but less so by developers. Aggregate returned to its originating site is exempt from AGL. The new legislation will restrict this exemption to where the returned aggregate is to be used in connection with winning more aggregate or other minerals from that site.  In practice this measure will remove exemption for aggregate removed from ‘borrow pits’ situated nearby development sites – essentially treating borrow pits the same as commercial quarries – and address concerns in the quarry industry that this exemption has been distortive.

Borrow pits are used mostly in connection with large development projects in areas where there are valuable minerals. All such projects should re-examine their use of borrow pits and more generally, how they go about sourcing aggregate material for their development, consider the increased costs that this measure will introduce, and think about whether they, or their contractors, have responsibility to account for the AGL that will arise.

Both measures would come into effect on 1 April 2023.

If you are affected by any of the above changes or if you are interested to know more about how environmental tax impacts your business, please get in touch with your usual Centurion VAT contact or contact the team as a whole using emailus@centurionvat.com.

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