Memorandum submitted by HM Treasury and
HM Customs
ASSURANCE OF AGGREGATES LEVY IN NORTHERN
IRELAND
BACKGROUND
1. Aggregates levy is an environmental tax
on the commercial exploitation in the UK of virgin aggregate (rock,
sand and gravel) and was introduced across the UK on 1 April 2002
at a rate of £1.60 per tonne (this rate remained unchanged
in Budget 2003). The objective of the levy, in line with the Government's
statement of intent on environmental taxation, is to address the
environmental costs associated with quarrying operations (noise,
dust, visual intrusion, loss of amenity and damage to biodiversity)
and reduce the demand for virgin aggregate, encouraging the use
of re-cycled and alternative materials (such as recycled construction
and demolition waste).
2. The levy was designed following extensive
consultation with the industry over a period of nearly four years.
It is a specific, one stage, nondeductible tax and its administration
mirrors, as far as possible, landfill tax and climate change Ievy
regimes. Anybody who commercially exploits aggregate in the UK
is liable to register and account for the levy to Customs and
Excise. Exports of aggregate from the UK are relieved and imported
aggregates taxed on first sale or use in the UK.
3. There is a range of exemptions for other
quarried or mined products such as coal, clay, metal ores, industrial
minerals, etc and for limestone used in the production of lime
or cement. Blocks of dimension stone or building stone, and any
rock, sand or gravel used in a prescribed industrial or agricultural
process (ie a non-aggregate use), are relieved from the levy.
Recycled aggregate previously used for construction purposes is
not taxed. Many materials are also exempt because they are by-products
of other processes, provide useful alternatives to virgin aggregates
and their use is encouraged by the Government's Mineral Planning
policies. Examples include colliery spoil, slate waste, china
clay waste and metallurgical slags.
4. As the aggregate content of processed
products (concrete blocks, concrete pipes, ready mix concrete
and coated roadstone) imported from the Republic of Ireland is
not taxable and aggregate in such products exported to the Republic
is, there was a risk that products from the Republic could undercut
those manufactured in Northern Ireland. Recognising the need for
special consideration to be given to processed product manufacturers
in Northern Ireland, the Government introduced relief on aggregate
used in processed products from the start of the levy (following
EU State aid clearance) to allow the industry five years to adjust
to the effects of the levy. This relief applied at 100% in 2002-03,
is currently 80%, and will apply at 60%, 40% and 20% for the next
three financial years respectively. It is due to come to an end
on 31 March 2007. Virgin aggregate that is not used for processing
is liable to the full rate of aggregates levy.
IMPACT OF
AGGREGATES LEVY
IN NORTHERN
IRELAND
5. There are a number of threats to the
aggregates levy yield which can potentially undermine the legitimate
aggregates industry:
(a) Users of aggregate may import their own aggregate
from the Republic of Ireland and not account for aggregates levy
when they use it (crossing the Republic of Ireland/Northern Ireland
border does not create a charge to tax, but the aggregate becomes
taxable when sold or used in Northern Ireland).
(b) Users may buy aggregate that has been imported
from the Republic (with no levy being paid at point of sale) and
not account for the levy when they use it.
(c) Quarry operators may fail to register with
Customs for the levy and supply aggregates without accounting
for it. Such operators may also be in breach of environmental
regulations.
(d) Users of aggregate may buy aggregate from
such quarry operators and fail to account for the levy when they
use it.
(e) Quarry operators may falsely claim reliefs
to which they are not entitled (eg by mis-describing aggregates
as materials to which aggregates levy does not apply; by claiming
that some aggregate has been put to a use that is relieved from
the levy; or by accounting for some sales to businesses as exports).
(f) Quarry operators may suppress a proportion
of their sales by diverting material around the weighbridge.
Although only the first two threats are unique
to Northern Ireland, there is nevertheless some evidence that
in practice the risks from some of the other threats are greater
in Northern Ireland than in Great Britain.
ACTION BY
CUSTOMS AND
EXCISE
6. Action is on two fronts: examining policy
options and responding to the operational risks. On both fronts,
Customs have held discussions with the industry to obtain a clearer
view of their concerns.
7. On the policy front, Customs are exploring
with the industry possibilities for a wider, longer lasting relief
in exchange for a commitment from the industry to sign up to a
package of environmental improvement measures. Ministers have
given an undertaking to the Northern Ireland aggregates industry
that it will consider the industry's detailed proposals. Any scheme
would need to be consistent with the environmental objectives
of the tax but in reaching its decisions, the Government will
also take account the views of industry, the Committee and others
on other factors, such as the overall impact on the economy, the
effect on employment and the practicalities of operating the scheme
both for the industry and Customs. To help assess whether such
an extended relief scheme is justified, and to obtain data about
the impact of the levy to date and the potential for recycling
of aggregates in the province, Customs have commissioned further
specific research, with the full co-operation of the aggregates/construction
industries. The study is expected to report in the autumn.
8. Customs are addressing the operational
risks in a number of ways and have increased the resources available
for levy work in the province. The Department is also currently
considering enhancing intelligence gathering to support and better
target its assurance activity. On specific operational issues,
Customs:
— have established links with the Revenue
Commissioners in the Republic of Ireland to support cross-border
co-operation on aggregates sales and evasion of aggregates levy
and VAT in Northern Ireland, and of VAT in the Republic;
— have arranged publicity in the trade
press in Northern Ireland and more is planned. This highlights
that using aggregate on which the levy has not been paid is not
someone else's problem. End users could have to register and account
for the levy;
— have arranged for information exchange
between the planning authorities in Northern Ireland and our local
staff there and are currently in further discussion with the planning
authorities to assess whether there is anything more that can
be done bilaterally to restrict operations that are not licensed
with these authorities;
— have completed a programme of visits
to about 140 construction sites close to the border with the Republic.
Four registrations were secured as a result. The levy liability
from those four businesses currently stands at £40,000. Under
phase two of this exercise, Customs plan to conduct fewer but
more in-depth visits, starting in October, when new staff will
have completed their training; and
— are addressing the risk that quarry
operators may falsely claim reliefs to which they are not entitled
through a UK-wide exercise (also due to begin in October) aimed
at users of aggregate who are completing certificates where the
aggregate they are using is being put to a use which is relieved
from the levy.
CONCLUSION
9. The Customs Minister, the Economic Secretary
John Healey MP, will be providing oral evidence on 5 November
and the Committee may wish to discuss issues raised in this paper
with the Minister at that time.
12 September 2003
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