Waste management firm Barr Environmental have been slapped with a humongous fine for £99million after being found to have not paid tax on 'disposed waste'.

Revenue Scotland have come to the conclusion that the firm owes the public purse £99,642,808 in Scottish Landfill Tax (SLfT).

After initially being notified on July 31, 2018 of Revenue Scotland's decision, Barr started an appeal process, but were knocked back by Revenue Scotland at a tribunal last week. 

Barr have 30 days from October 5 to lodge an appeal against the tribunal's findings.

Barr Environmental provide waste management services for both East and South Ayrshire councils.

As a result of the findings of the tribunal, the councils may now have to fork out more cash to Barr Environmental to provide waste services as the company can't operate under the same terms as was agreed in a contract signed with the councils in 2013.

That contract is due to expire in April 2022.

South Ayrshire Council were coy as to whether this meant they'd face any extra charges.

A South Ayrshire Council spokesperson said: “We are currently in a contract with Barr Environmental Ltd for the treatment of our residual waste.

"The contract is in place until April next year and the procurement process is underway for a new contract, this will be established when the current contract expires.

"The agreed contract rates are commercially sensitive so we are unable to comment on them.”

However, in response to an enquiry from our sister paper, the Cumnock Chronicle, David Mitchell, chief governance officer, East Ayrshire Council revealed that they could well end up paying more money to Barr.

Ayr Advertiser: David Mitchell, chief governance officer, East Ayrshire CouncilDavid Mitchell, chief governance officer, East Ayrshire Council

He said: “The choice facing the council is whether to remain with Barr at increased cost (which could be recovered if the Barr appeal were ultimately successful), or to put alternative service delivery arrangements in place with an alternative operator, which will also incur additional cost, but which would not be recoverable.

“The Council is urgently considering both of these options and continues to engage with Barr in order to fully understand the increase in costs being sought before reaching a final position.

"Both of these are only short term options as the council will in any event be retendering this service with a view to awarding a new contract from May 2022, and we will ultimately adopt the approach which delivers best value and least impact on service delivery in the interim."

A First Tier Tribunal on October 5 found that Barr owed the tax on "substantial quantities of material that the company say they used for engineering of outer cell walls (“OCWs”), permanent roads and for restoration at its two Scottish landfill sites at Auchencarroch and Garlaff," between April 1, 2015 and December 31, 2017.

Ayr Advertiser: Garlaff Landfill SiteGarlaff Landfill Site

Over the years, the company has made use of material, that would otherwise be disposed of in landfill, for building roads and other engineering purposes at their landfill sites.

Revenue Scotland say that they should have been paying tax on this material.

Barr argued that the material was not taxable, but the tribunal found that it "amounts to a disposal of waste and therefore taxable."

The SLfT replaced UK Landfill Tax in Scotland on April 1, 2015, following the passage of the Scotland Act 2012 and the subsequent Landfill Tax (Scotland) Act 2014.

SLfT is charged to operators of landfill sites in Scotland, and they reflect the costs of the tax in their charges to the local authorities and businesses who dispose of waste at these landfill sites. 

There are two rates: 

  • Standard rate: £96.70 per tonne
  • Lower rate: £3.10 per tonne

It was the company's low costs and high recycling rate that helped them win the council contracts in the first place. 

The report details information from the company's pitch for the contract in 2013, it said: “We will save the Councils £10 million in avoided landfill tax charges over the course of the contract,” money that would be saved by the "diversion of waste from landfill and avoiding landfill tax.”

They added that they would be “…diverting Biodegradeable Municipal Waste (BMW) and also increasing the levels of material recycling and recovery.”

However, the tribunal found that the materials used in this manner still constituted "taxable disposals because the materials were disposed of with the intention to discard as waste by way of landfill at a landfill site."

Another bone of contention was around the tax classification of a material known as 'filter cake', a deposit of insoluble material left on a filter which is designed to extract particles from a liquid.

Ayr Advertiser: Filter cake sludge.Filter cake sludge.

Barr were in trouble for the rate of tax they'd been paying on 246.7 tonnes of filter cake that it received during quarters 1 to 4 of 2015/16.

The contaminated liquid is forced through the filter at high pressure to remove the particles. The particles are left on the filter and form the filter cake.

If filter cake is made up of aluminium hydroxide, as Barr claimed there's was, then it would qualify for the lower rate of SLfT.

However, test results from Scottish Water showed only a very small proportion of the filter cake was made up of this material, as little as 5 per cent, the rest being made up of water, organic material, and other mineral matter.

Therefore, Barr should have been paying the standard rate of SLfT. And they should have been aware of this.

Scottish Water had forwarded a letter to Revenue Scotland received by them from HMRC to landfill operators in March 2014.

The HMRC letter said: “From the information provided I have concluded that aluminium hydroxide filter cake resulting from the treatment of fresh water does not consist entirely of qualifying materials nor does the percentage of non qualifying materials fall to be considered under the ‘small quantity’ concession within section 63.

"This material is therefore subject to the standard rate of landfill tax when disposed of by way of landfill.”

The tribunal report says that initially Barr denied any knowledge of that letter but later conceded in correspondence with Revenue Scotland that they had indeed received it in 2014.

Barr's appeal against this charge was dismissed, the report giving the following reasons: "Barr’s behaviour was deliberate. We find that Barr’s behaviour in this regard is reprehensible and indeed reckless.

"Therefore we find that the imposition of a penalty for deliberate behaviour is entirely appropriate and see no reason for any reduction in terms of Sections 191 and 192 RSTPA. The appeal on that ground is dismissed."

And on the material not declared as taxable, it adds: "Barr’s behaviour was deliberate and indeed reckless in relation to both the OCWs and restoration.

"Although Mr Ramsey [Gavin Ramsey, Barr's current managing director] denied that the motivation was tax savings, for the reasons given, we find that that was a powerful motive as was the wish to be able to be competitively priced as a result."

Barr have said that they cannot comment for legal reasons.