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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Waste disposal: Landfill Tax: payments to environmental trusts

Reg30-Reg36 Landfill Tax Regulations 1996, SI 1996 No 1527

Landfill site operators are able to make payments to environmental trusts and receive a consequent credit against the total Landfill Tax payable by them.

Environmental trusts may take various forms but are normally non-profit distributing bodies within the private sector. They will normally be at arms-length from landfill site operators. They have no direct relationship with HMRC although they are subject to approval by a regulatory body, ENTRUST, which is the responsibility of HMRC.

Trusts are able to engage in a wide range of activities relating to a list of approved environmental objectives. They will fund projects in accordance with the approved environmental objectives. The projects are required not to be of direct benefit to the individual landfill site operators nor to benefit a person who caused the environmental damage.

Landfill site operators may choose to make contributions to environmental trusts. If they do so and the trust spends money on approved environmental purposes, the site operator can claim a credit of Landfill Tax equivalent to 90% of their contribution up to a maximum of 6.8% of their total landfill tax bill in a 12 month period.

A landfill site operator can be allowed a deduction for a contribution to an environmental trust provided it passes the usual tests, particularly that the payment is made wholly and exclusively for the purposes of the trade.

Where the payment is made by a site operator to an unconnected trust solely to help it finance projects in accordance with the list of approved environmental objectives then the payment is likely to pass the wholly and exclusively test as a heavily subsidised, and therefore commercially attractive, means of obtaining a business benefit, for example as a form of sponsorship or advertising (see BIM42555).

On the other hand, the inference that the payment was made exclusively for the purposes of the operator’s own trade may be less self-evident where for example:

  • the operator’s association with an unconnected trust does not generate a benefit (such as favourable publicity) commensurate with the net cost of the contribution, or
  • the payment was made to a body over which the site operator had some control.

In such cases you should consider making enquiries to establish whether there was also a non-trade purpose in making the contributions.

The Landfill Tax credit matching a contribution to an environmental trust is equivalent to trading income and should be brought into account either directly as a taxable trading receipt or by restricting the relief given for Landfill Tax.