Landfill tax: waste used as "fluff" not disposed of "as waste"

The Upper Tribunal (UT) has held that household waste used as bottom or side fluff on landfill sites by landfill site operators was not disposed of “as waste” and accordingly was not subject to landfill tax: Veolia ES Landfill Ltd and others v HMRC (Upper Tribunal, 02 January 2020).

Veolia (advised by Simmons & Simmons) and the other landfill site operators concerned in the appeal successfully argued that the First-tier Tribunal (FTT) had incorrectly concluded that the waste selected to be used as fluff was nevertheless discarded as waste. Although the decision is now largely of historical interest as the particular situation has since been the subject of legislation, the decision is nevertheless an important one of principle and offers a limited opportunity for other site operators to make or amend repayment claims based on the successful appeal.

Background

These appeals concerned “black bag waste” used by site operators to line a landfill site cell. Some black bag waste, emanating from households, shops and offices (as distinct from manufacturing, construction or industrial waste) is deployed, or made use of, in a particular way by site operators. Instead of being cast into the landfill cells and crushed together with any other types of waste that is disposed of there, some black bag waste is selected and carefully placed and only lightly compacted, in order to provide protection, as a buffer layer, for the all-important geomembrane liner and geotextile protection layer at the bottom and on the sides of the cell and the cap at the top of the cell. These layers contain the waste, prevent leakage of harmful leachate into the earth and prevent escape of landfill gas. The black bag waste so deployed is known in the industry as “fluff”, deployed either as “base fluff” and “side fluff” or as “top fluff”, and is intended (in the case of base and side fluff) to absorb the impact of any sharp objects that are later disposed of and crushed above it, thereby ensuring the integrity of the liner and layer beneath or (in the case of top fluff) to accommodate differential settlement in the waste disposed of below it and to ensure a smooth and consistent base layer to accept the regulating layer. Deployed in this way, the black bag waste performs a function in the cell, but is also waste that is disposed of there.

FA 1996 section 40 defined a “taxable disposal” for landfill tax purposes as involving a “disposal of material as waste” by way of landfill at a landfill site. Section 64 further explains that a disposal is of material as waste if the person making the disposal does so with the intention of discarding the material. HMRC considered that the use of such common household waste did not detract from the material being disposed of “as waste” such that it was subject to landfill tax. In contrast, the companies concerned considered that the waste was used, rather than being disposed of as waste, relying on the Court of Appeal decision in HMRC v Waste Recycling Group Ltd [2008] EWCA 849.

The FTT held that, although the black bag waste was used to protect the lining of the landfill cells, it was simply carefully disposed of as waste. The fact that the material was useful did not negate the fact that the taxpayers discarded them as waste.

Decision of the UT

The UT has overturned the FTT judgment and has ruled unequivocally in favour of the taxpayers. The UT considered that the Court of Appeal decision in Waste Recycling Group is authority for the fact that, as a matter of principle, that if a site operator disposes of material at a landfill site, but in doing so intends to and does make use of its properties for his own purposes, including compliance with regulations, licenses, permits or any other requirements for the site, that use means that the operator does not make the disposal with the intention of discarding the material. That is so regardless of whether the material is recycled or sorted before being deposited on the landfill site, and even though the disposal is acknowledged to be “by way of landfill” within the meaning of FA 1996 sections 40 and 65(1).

The FTT had been wrong to consider that the Court of Appeal merely held that re-use of materials was an indicator of use to be taken into account but no more than that. Accordingly, the FTT had been wrong to hold that the use of fluff to protect the cell lining was not enough to negate an intention to discard it. In doing so the FTT fell into the “once waste, always waste” trap of considering that material is disposed of by the site operator “as waste” because it had previously been discarded as waste by someone else. Whether it is disposed of as waste at the critical time depends on the intention of the person who deposits the material on or under the land at a landfill site. It is not the character of the material that is determinative but the intention with which it is so deposited. It is therefore wrong in principle to conclude that there was an intention to discard because the black bags were waste destined for landfill in any event.

The UT concluded that the taxpayer companies, when disposing of fluff at their landfill sites, intended to and did make use of the properties of the fluff for their own purposes, namely providing a layer of protection for the geomembrane and drainage layer in the cell and the cap of the cell, thereby complying with the regulatory requirements for use of the landfill cell. There was no distinction drawn between base or side fluff and top fluff.

Accordingly, the taxpayers’ appeals were allowed.

Comment

There is now a limited opportunity to make claims for top fluff that have not previously been made for periods between 2015 to 2018 or to amend claims previously made for base or side fluff in any period to include top fluff.

Changes introduced by The Landfill Tax (Prescribed Activities) Order 2009 (SI 2009/1929) ensured that base and side fluff would be taxed, however the FTT held that top fluff was not taxed by this measure (which HMRC did not appeal). The law was changed again in The Landfill Tax (Disposal of Material) Order 2018 (SI 2018/442) which now provides that the placement of ‘all materials’ in a landfill cell shall be taxed other than materials used in the drainage layer, gas infrastructure, restoration materials and materials placed in an information area.