|Aggregates Levy (Registration and Miscellaneous Provisions) Regulations 2001 and Aggregates Levy (General) Regulations 2002
The Chairman: Order. I am listening extremely carefully to the hon. Gentleman, and have exercised some generosity given that he is the lead speaker. However, I remind all Committee members that the debate is not about the rights, wrongs and purposes of the aggregate levy: it is about the details of taxation—registration and so on. The scope of debate is indicated on the front page of each of the statutory instruments. I have allowed the hon. Gentleman to stray beyond that, but I should be grateful if, for the rest of the debate, he and other Committee members concentrated on the details that are the subject of the debate. If they need guidance, they need only look at the front page of each statutory instrument.
Mr. Salmond: On a point of order, Mr. O'Hara. I am sure that we all appreciate guidance from the Chair, but the example given surely refers to the schedule to statutory instrument No. 761, which deals with exemptions. That is why the sand in the grass is exempt and the sand in the sandpit is not.
The Chairman: I suppose that I must allow reference to those items. However, in general terms I stand by my ruling that hon. Members should be guided by the subject of the instruments in their contribution to the debate.
Mr. Boateng: On a point of information, Mr. O'Hara. I am informed that all sand is taxable, whether it is in the long jump pit or spread on the grass. It is only relieved if it is a pre-mix, to produce a growing medium. Perhaps that helps the hon. Member for Aylesbury (Mr. Lidington).
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Mr. Lidington: The Minister has just illustrated the complexity of the measure. Again, the industry's interpretation is different from his. One of the reasons why Opposition Members, irrespective of party, have argued for greater time for scrutiny and consideration is that it would enable us to be certain of the contents of the regulations that we are being asked to approve.
Mr. Salmond: The matter becomes further complicated, as I am sure the Minister was about to tell us. Regulation 13 of statutory instrument No. 761 tells us that sand, if it is to be used for beach restoration, is exempt from the tax or attracts tax relief. Perhaps the matter is even more complicated than the Minister suggests.
Mr. Lidington: The hon. Gentleman is correct. There is an exemption for sand used for beach restoration; however, I understand that any aggregate used for coastal defence is taxable. There are many complexities in the regulations—
The Chairman: Order. Hon. Members may refer to the items mentioned, but they must not debate the rights and wrongs of them.
Mr. Lidington: I am grateful to you, Mr. O'Hara, for allowing me the leeway to set the background to the debate. I shall move on to part III of statutory instrument No. 761 and make a few points about the tax point and the accounting procedure that companies are having to consider as the new tax comes into effect. In my attempt to understand how the Government want the regulations to be implemented, I have made use of the Customs and Excise general guide, which has been a useful source of interpretations of terms used in the regulations and in the primary legislation.
According to the guide, at paragraph 12.3, the tax point is when a quantity of aggregate first becomes subject to commercial exploitation, which is defined both in the guide and the primary legislation as occurring at the earliest of four possible events: when it is removed from its original site; when it becomes subject to an agreement to supply to another person; when it is used in construction; or when it is mixed with any material other than water. When one of those four events occurs, commercial exploitation is deemed to have happened and the regulatory arrangement for accounting for the aggregates levy swings into action.
However, there are some ambiguities about how the legislation would apply in practice. Let us consider the notional example of a quarry that enters into a contract with a motorway construction company to extract 1 million tonnes of granite road stone. That material would be taxed at the standard rate of £1.60 a tonne, so £1.6 million would be due in aggregates levy from that supplier. My understanding is that once the contract is signed, the whole 1 million tonnes becomes subject to an agreement to supply to another person. The regulations provide that a registered company must account for all tax due at the end of the first quarter after the tax point has been reached and that the tax must be paid within 30 days—a month—of the end of the quarter for which that account has been given.
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If, I am correct in saying that, in my hypothetical case, the whole £1.6 million of levy is due from the moment at which the contract is signed, there are serious implications for the cash flow of aggregates companies. Such companies may enter into a long-term contract to supply material to a construction company under which they will be paid only after the delivery of each instalment of material. There could, therefore, be a clash between tax regulations that demand payment up front for the entire period of the contract and normal contractual supply arrangements under which the quarry operator receives the cash in instalments over time.
I examined Customs' guidance to find out whether there was any scope for flexibility. Paragraphs 2.8 and 2.11 appear to offer some, but I am not yet persuaded. My reading of what Customs has said is that if a contract specifies the creation of a dedicated stockpile as part of a contract, which I understand to be normal industry practice, liability to aggregates levy on the entire contract—not on a particular load, but on the entire contract—will arise as soon as any of the aggregate is moved from its originating site.
The Minister may be able to reassure the industry that its concerns have been taken into account, and that I am mistaken in the fears that I have expressed. However, my reading and, more important, that of large sections of the aggregate industry is that the regulations will be the cause of a clash between what is happening in the real world, with companies being paid in arrears, by instalments, as they deliver loads to their customers, and the demands of Customs and Excise for the money to be delivered up front, within a month of the quarter end.
A similar problem—I shall refer to this only in passing—could result with mixes. I am told that some sand and gravel mixes are mixed well before being transported from the quarry to the construction company or other customer. However, going back to the definitions that I listed earlier, the tax point would occur at the moment the raw aggregate was mixed with the other substance—namely, the sand. It therefore seems that, in this case, too, the tax liability could arise well in advance of the company's ability to pay Customs and Excise out of the proceeds of the deal.
I move on to the detailed difficulties that would be caused to registered companies over long-term contracts. As I understand it, the tax rules give companies supplying raw aggregates the right to adjust their long-term contracts to take account of price rises caused by the levy. However, that freedom does not apply to contracts to supply aggregate products, such as concrete blocks. That will effectively stop companies passing on that cost to their customers. Nor does there seem to be any provision for adjusting contracts further up the supply chain. Construction companies may face major problems, because although their suppliers would be able, under the Government's scheme, to raise the contracted price of raw aggregates to take account of the extra cost of the levy, they would still be bound to their original contract prices to their end customers. That, too, could result in financial pressure on the industry.
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There is another complication over bad debt relief, which is dealt with in regulation 12 of the general regulations. Bad debt relief is not provided for products made out of taxed aggregates. It is allowed for raw aggregates, but not for products made from them. A company that digs the aggregate out of the ground and turns it into a value added product on site will not be able to claim bad debt relief on the levy that it pays on the aggregate incorporated into the product, although it would be able, in similar circumstances, to obtain relief on bad debt arising out of raw aggregates only. Nor is the tax credit for bad debt guaranteed at the full rate of £1.60 per tonne. That is spelled out in regulations 12(4) and 12(7). It seems to me that the relief for bad debt for lower value aggregates could be significantly less than the tax paid. Is that the case and, if so, why has the Minister decided on such a policy?
I turn to registration and liability for the aggregates levy, referred to in part II of statutory instrument No. 4027. Unlike value added tax, the aggregates levy has no threshold, which is important because spoil, waste and by-products from exempt processes are taxable. That raises questions about who has to register in accordance with the procedures in the regulations. For example, if limestone is taken from a quarry to make cement, it will be exempt from the aggregates levy. I note in passing that limestone quarried to make concrete will be taxable, but that is just another of the little absurdities that face us in the regulations. If the waste from limestone extraction is commercially exploited under the definition in the legislation, the limestone quarry operator must register and pay tax on by-products that they are commercially used.
Such matters are important, and there is a real need for certainty, because the penalties for failing to comply with the legislation are severe. Industry may rightly expect the Government to give it clear guidance as to who will need to register and pay tax.
I remain unconvinced that the Government have finally sorted out their position on the taxation of by-products and overburden. From my conversations with people in the industry, I know that Customs and Excise told them that Ministers had decided that all overburden would be taxed, including overburden arising from exempt processes such as china clay. I believe that the Government intend to legislate for that in this year's Finance Bill, so it would be helpful if the Minister used this opportunity to make their position clear.
I have two final points. First, on the calculation on the amount of levy that will be due, I understand from the text of part II of the general regulations that in large operations the use of a weighbridge will be mandatory. Weighbridges can be calibrated to ensure that the taxable material can be measured and that the non-taxable substances in any load can be discounted. What happens if no weighbridge is available on site, however? That is a question of especial concern to small quarry operators, although others would be in the same circumstances if the use of a weighbridge were to be impracticable. Regulation 4 of the general regulations says that, in those circumstances,
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Will there be standard approved methods that the commissioners will publish and have on the peg so that the industry can weigh its options if the use of a weighbridge is not possible? Alternatively, will the operator need to make a separate application to the commissioners on each and every occasion that he wants to subject some aggregate to commercial exploitation and a weighbridge is unavailable?
My final point relates to Northern Ireland. The Minister referred to special circumstances, and a Select Committee report has been produced. I hope that the Minister will be able to update the Committee on where we stand with regard to Northern Ireland. Has the Commission given state aid approval and, if not, when do the Government hope that that will be received? Will further legislation be needed to make separate arrangements for Northern Ireland and, if so, will it be primary or secondary? In the meantime, pending Commission approval and separate legislative arrangements being put in place, do operators in Northern Ireland need to comply with the regulations even though the Government apparently intend to introduce a system of reliefs and rebates for Northern Ireland operators and backdate them to 1 April this year? I am far from clear about how those different actual or possible future measures will interact with one another.
The regulations clearly show that we are wrestling with a complicated tax measure the implications of which remain highly uncertain but which seem certain to impose significant burdens on a sector of British industry, with no clear evidence that the Government's desirable environmental objectives will be achieved.
|©Parliamentary copyright 2002||Prepared 29 April 2002|