A dispute over whether local authorities should be exempt from paying VAT on trade waste collections could go to the courts, after an application for Judicial Review was submitted earlier this month.
Under current rules established by Her Majesty’s Revenue & Customs (HMRC) in 2011, councils are exempt from paying value added tax on commercial waste collections.
The exemption was highlighted as a ‘useful selling point’ by the Waste & Resources Action Programme earlier this year, and a potential revenue stream in the current ‘tough climate’ for local government (see letsrecycle.com story).
But North East-based recycling firm Max Recycle – a brand of the Durham Company Ltd – submitted an application for a Judicial Review earlier this month (December 5) contesting the rule, arguing it is in breach of EU competition law.
The company argues that most businesses prefer to receive a service free of VAT as they otherwise suffer a ‘cash flow disadvantage’, which instantly creates an uneven playing field.
And other customers such as hospitals, independent schools or charities whose activities are not ‘100% taxable’ can only recover a small percentage, if any, of the VAT charged to them.
This also puts the private sector at a competitive disadvantage and means it must charge lower prices in order to cover itself that part of the VAT that the customer is unable to recover, according to the firm.
Max Recycle estimates that it needs to be able to undercut council prices by around 17% in order to have ‘any real chance’ of attracting the business of a customer unable to recover VAT.
Therefore, if a local authority charged £10,000 a year for commercial waste services – the company claims it would need to charge £8,333 in order to match that price in terms of actual cost to the customer.
According to the Durham Company, HMRC wrote to the firm on November 25 2014 stating that it had ‘completed’ a review of the VAT exemption. However, HMRC did not divulge the outcome to the company.
But the Durham Company argues that HMRC is conferring ‘unlawful State Aid’ on councils, which is prohibited under Articles 107 and 108 of the Treaty of the Functioning of the European Union.