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OPERATIONAL GUIDANCE
THE LANDFILL TAX CREDIT SCHEME
Overview
OG 55 A1 – 10 January 2005
Functional responsibility
| For action |
Regulatory Framework |
For information |
All staff |
Contents
1. What is the purpose of the Scheme?
2. ENTRUST
3. What type of projects can be funded through the Landfill Tax Credit Scheme?
4. Enrolment by ENTRUST
5. Environmental Bodies
6. Contributing third parties
7. An example of how the Landfill Tax Credit Scheme works in practice
Glossary of Terms used in this Guidance
Index to further related information
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| The Law |
Refer to a lawyer |
Refer to an accountant |
1. What is the purpose of the Scheme? |
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Due to the increase in domestic and industrial waste being produced, HM Government decided to introduce a tax to encourage consumers and companies to produce less waste and to recover value from the waste produced. The Landfill Tax was introduced on 1 October 1996. Under the Landfill Tax Credit Scheme (LTCS) landfill operators can claim a credit of up to 6.8% of their tax liability to HM Customs and Excise (HMCE) if they make qualifying contributions to Environmental Bodies (EBs). |
2. ENTRUST |
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Through powers conferred on them in the Finance Act 1996, HMCE approved the formation of a not-for-profit body in the private sector to regulate the LTCS called ENTRUST. This body has the mandate to approve and enrol EBs, after which they are eligible to receive qualifying contributions. |
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3. What type of projects can be funded through the Landfill Tax Credit Scheme? |
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Criteria for approval were set out in the Landfill Tax Regulations 1996 ("the Regulations") which described a number of approved objects within which EBs can work. The current approved objects have been summarised as follows: |
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Object A: Projects that involve reclaiming land, the use of which has been prevented by some previous activity; |
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Object B: Projects that reduce or prevent pollution on land; * |
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Object D: Projects that provide or maintain public amenities or parks within 10 miles of a landfill site; |
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Object DA: Delivery of biodiversity conservation for UK species' habitats: |
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Object E: Projects to restore or repair buildings for religious worship, or of architectural or historical interest within 10 miles of a landfill site: |
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Object F: Projects that fund the cost of administrative, financial or other similar services, supplied to other enrolled environmental bodies. |
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* Objects C and CC of the Regulations were removed on the 1st April 2003. |
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For objects which are acceptable both to Entrust and to the Charity Commission, see the model objects in section 3 of OG 55 B1). |
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4. Enrolment by ENTRUST |
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To be enrolled by ENTRUST as an environmental body (EB), a charity's governing document must contain one or more objects that are the same or similar to one or more of the approved objects in the landfill tax regulations. ENTRUST also has other requirements before enrolment that are to do with the control and management of the charity. |
5. Environmental Bodies |
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A charity can be an EB as long as it has objects that include one or more of the ENTRUST approved objects. It can then be enrolled as an EB and be eligible to receive qualifying contributions from landfill operators. |
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A Distributing Environmental Body is an organisation that is enrolled with ENTRUST which helps others to access qualifying contributions. Not all require those they help to become EBs themselves. |
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6. Contributing third parties |
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When a landfill operator makes a qualifying contribution to an EB it can only claim a tax credit of 90% of the contribution made (up to a maximum of 6.8% of the total tax liability). The remaining 10% is paid by the operator itself without any tax credit, but the operator can be indemnified by an independent Contributing Third Party (CTP). CTPs are very diverse and include major PLCs and individuals and can come from the private, public, voluntary or charitable sector. The indemnity: |
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must be given by an independent third party which may not be an EB, a company corporately associated with an EB or a contractor to an EB; |
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must be satisfied by payment from the third party directly to the landfill operator (not through the EB); |
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must not benefit the CTP unless that benefit is widely shared with others; |
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must be notified to HM Customs and Excise giving the name of the CTP and the date and the amount of the payment; and |
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must not pass through the EBs accounts. |
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7. An example of how the Landfill Tax Credit Scheme works in practice |
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1. The landfill operator's landfill tax liability is, say, £100,000. |
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2. 93.2% of the tax liability must in any case be paid to HMCE - £93,200. |
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3. The landfill operator can obtain relief for up to the remaining 6.8% of the tax liability - i.e. £6,800 - if he makes qualifying contributions to EBs to be spent on the approved objects. |
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4. Landfill operators can only set 90% of the value of their qualifying contributions against the tax liability. Therefore, the operator must make qualifying contributions totalling at least £7,556 in order to remit the whole of the £6,800 tax liability. |
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5. The landfill operator must pay the 10% balance - i.e. £756 - himself. But he can be indemnified by a third party which has an interest in ensuring that the whole qualifying contribution of £7,556 is received by EBs. A charity can be a contributing third party if the conditions referred to in paragraph 23 below are satisfied. |
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6. If the qualifying contributions made to the EB by the landfill operator total only, say, £5,000, only £4,500 of the tax liability is remitted. The operator therefore has to pay a further £2,300 to HMCE. |
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Index to further related information
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