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HMRC internal manual

Business Income Manual

Waste disposal: site preparation: revenue expenditure

S165-S167 Income Tax (Trading and Other Income) Act 2005, S142-S144 Corporation Tax Act 2009

Modern practice is to create within a single site a series of cells each of which is filled with waste material before being sealed. As the original cells are filled further cells are constructed vertically and horizontally such that, over the lifetime of the site, a honeycomb structure results. Over the period that a site is used for waste disposal a large number of such cells will be constructed.

It might be argued that the expenditure on creating the internal walls and temporary surfaces of cells within the external containment structure is capital, because it results in the permanent modification of a capital asset, the site. However, where the economic life, that is the period during which it can receive waste, of a cell is short we accept that the expenditure on creating the internal sub-divisions to create these internal cells is revenue and not, therefore, within the site preparation expenditure legislation.

Engineering a modern waste disposal site to the point where waste can be deposited often includes constructing an impermeable clay layer, or laying an artificial lining, across the base and sides of the site. When the site has eventually been filled these elements, together with the final capping, create a containment structure for the whole site that is likely to fulfil that function for decades. We view the costs of creating such a containment structure as capital expenditure.

For practical and financial reasons, the base and sides of site containment structures are often built in sections, with internal barriers, or ‘bunds’, on the open sides to create the first level of internal cells. Provided these internal cells are filled and sealed within two years, we accept that the costs of the internal earthworks, i.e. the bunds and any internal caps, are revenue expenditure. However, the costs of the base and sides, which form part of the site containment structure, remain capital expenditure.

See BIM67516 for a memorandum of understanding between HMRC and the Environmental Services Association providing for a methodology for the waste industry to adopt in allocating expenditure (capital or revenue) between whole site expenditure and cell costs.