Policy paper

Landfill Tax: increase in rates

Published 16 March 2016

Who is likely to be affected

Businesses registered with HM Revenue and Customs (HMRC) for Landfill Tax.

General description of the measure

This measure will increase both the standard and lower rates of Landfill Tax in line with the Retail Prices Index (RPI), rounded to the nearest 5 pence, for taxable disposals of waste made at authorised landfill from April 2017 and again from April 2018.

Policy objective

Landfill Tax is charged on waste disposed of at a landfill site. As such, it encourages efforts to minimise the amount of waste produced and the use of non-landfill waste management options, which may include recycling, composting and recovery. Since 2000, the amount of waste sent to landfill has dropped by 70% and the average household recycling rates have risen from 18% to 44%. Increasing Landfill Tax rates in line with RPI means that the Landfill Tax can continue to help the government meet its environmental objectives.

Background to the measure

Landfill Tax was introduced on 1 October 1996 to encourage waste producers and the waste management industry to switch to more sustainable alternatives for disposing of waste. There is a lower rate of tax, which applies to less polluting qualifying wastes covered by 2 Treasury Orders, and a standard rate which applies to all other taxable waste disposed of at authorised landfill sites. The tax applied across the UK until 1 April 2015 when it was devolved in Scotland.

The June 2010 Budget confirmed that the standard rate of Landfill Tax would rise by £8 per tonne on 1 April each year up to and including 2014. It also announced a floor under the standard rate so that the rate would not fall below £80 per tonne from April 2014 to at least 2020. Budget 2014 clarified that this floor should be interpreted in real terms and announced that the lower rate would, in future, also increase each year in line with inflation (based on the RPI), rounded to the nearest 5 pence. It also announced the intention to provide further long-term certainty.

In line with these announcements, Budgets 2014 and 2015 announced that, on 1 April 2015 and 1 April 2016, the standard and lower rates would increase in line with RPI, rounded to the nearest 5 pence.

A Loss on Ignition (LOI) testing regime was introduced on 1 April 2015. This provides for laboratory testing of samples of waste ‘fines’ to help operators determine Landfill Tax liability (fines are the residual waste produced following treatment of waste at waste transfer stations, before the waste is sent to a landfill site). The test measures the amount of water lost when the waste is burned - only qualifying fines with an LOI of 10% or lower are considered eligible for the lower rate, though there is a 12 month transitional period from 1 April 2015 where the threshold is 15%. This transitional period will come to an end on 31 March 2016.

Detailed proposal

Operative date

The increases in the standard and lower rates of Landfill Tax in line with RPI will apply to taxable disposals made, or treated as made at relevant landfill sites, on or after 1 April 2017 and on or after 1 April 2018. It is expected that Landfill Tax will be devolved to Wales from 1 April 2018 but this is subject to confirmation by the UK and Welsh governments and an Order being laid before Parliament. If devolution goes ahead by this date, the 2018 to 2019 rate changes will apply in England and Northern Ireland only.

Current law

Section 42 of the Finance Act 1996 specifies the rates of Landfill Tax.

Proposed revisions

Legislation will be introduced in Finance Bill 2016 to amend section 42(1)(a) and 42(2) to provide for the new rates of Landfill Tax. The rates being amended and the new rates will be:

Waste sent to landfill Rate from 1 April 2016 Rate from 1 April 2017 Rate from 1 April 2018
Standard rated £84.40/tonne £86.10/tonne £88.95/tonne
Lower rated £2.65/tonne £2.70/tonne £2.80/tonne

Summary of impacts

Exchequer impact (£m)

2016 to 2017 2017 to 2018 2018 to 2019 2019 to 2020 2020 to 2021
- nil nil nil nil

This measure is not expected to have an Exchequer impact.

Economic impact

This measure is not expected to have any economic impacts.

Impact on individuals, households and families

It is businesses and local authorities that bear the cost of Landfill Tax passed on to them by landfill site operators on the waste they send to landfill. This measure will not have a direct impact on individuals or households and is not expected to impact on family formation, stability or breakdown.

Equalities impacts

This measure concerns the taxation of businesses. As such it is very unlikely that there will be any impact on equality.

Impact on business including civil society organisations

The measure is expected to have a negligible impact on businesses. Those businesses registered with HMRC for the Landfill Tax which will be affected by the rate changes will incur a negligible one-off cost to update their systems. There are not expected to be any additional on-going costs. The measure is not expected to have any impact on civil society organisations or any significant impact on competition.

Operational impact (£m) (HMRC or other)

HMRC processing systems are designed to accommodate tax rate changes. The change will not increase HMRC processing or compliance resource.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

This measure will be monitored through receipts and tonnage information collected from tax returns or other data about volumes of waste sent to landfill.

Further advice

If you have any questions about this change, please contact Helen Horton on Telephone: 03000 514475 or email: helen.horton@hmrc.gsi.gov.uk.