Underpaid landfill tax investigations have recovered £1bn over five years due to the ease of making mistakes
The tax is intended to promote recycling instead of creating landfill waste, but complicated rules lead to site managers filling out forms incorrectly.
In 2022-23, HMRC recovered £281m, equivalent to more than a third of the total tax due, which was expected to raise £800m.
Underpayment leads to automatic HMRC penalties and extra tax charges, which in some cases can total millions of pounds.
Mistakes can be as trivial as a wrong word when describing the material, which in most cases would be innocent, although others would be looking to take advantage of the system.
Prices vary dramatically depending on the type of waste, from £3.25-£102.10 a tonne and because of this can be some of the ‘most costly errors in the entire UK tax system’, according to Sam Wardleworth, senior associate at Pinsent Masons.
Wardleworth said: ‘Making sure employees and drivers fill in forms correctly to ensure the correct rate of tax is payable can be very difficult in practice.
‘There is a level of subjectivity in what constitutes an accurate description of material and HMRC’s interpretation is strict.’
A significant factor for the confusion lies in the fact that the labelling of waste by the Environment Agency and HMRC is different, described as an ‘unhelpful interaction’ by Wardleworth.
If businesses label waste to HMRC using Environment Agency terms, this leads to mistakes in transfer notes, resulting in discrepancies.
Wardleworth said: ‘Unifying the environmental regime and landfill tax system is well overdue and it would likely prevent a great deal of landfill tax errors, improving compliance and saving money for businesses and time for HMRC.’
The landfill tax was introduced by the Conservatives in 1996, a policy led by environment secretary John Gummer when Ken Clarke was Chancellor.