Construction companies get clarity on Scottish aggregates tax exemption

Activity falls within an exemption to the tax where aggregate is extracted as a necessary part of construction work, according to the authority.

Since 1 April 2026, companies commercially exploiting aggregate in Scotland have been liable for Scottish aggregates tax, subject to certain exemptions. The tax has replaced the UK aggregates levy in Scotland.

The term ‘aggregate’ includes any rock, gravel, or sand, along with substances naturally occurring together with them or incorporated in them. It also applies to materials mixed with rock, gravel, or sand at the time of extraction. Revenue Scotland is responsible for collecting and managing the tax and businesses that commercially exploit aggregate in Scotland must register for the tax with the authority.

Before the Scottish aggregates tax came into force, Revenue Scotland issued guidance on the various exemptions to the regime. At the time, it explained that aggregate extracted as a necessary part of constructing a structure or infrastructure project may be exempt where the extraction is unavoidable and is not undertaken for the purpose of obtaining aggregate. However, the guidance also included an example suggesting that material excavated from test foundation holes would lose the benefit of the exemption if it was subsequently used in construction.

Tax experts Bryn Reynolds, Abigail McGregor and Shannon Mills of Pinsent Masons said the example created uncertainty as to whether entitlement to the exemption depended solely on the reason for extraction or whether the subsequent use of the material could also affect the exemption’s availability. In practice, it raised questions for construction and infrastructure projects where aggregate is excavated unavoidably as part of the works and then reused on site, they added.

Pinsent Masons made those points to Revenue Scotland, which has now issued revised guidance, replacing the earlier example.

According to the revised guidance, aggregate extracted as a necessary consequence of excavating land to lay foundations can qualify for the exemption, whilst aggregate extracted from an area that does not require excavation for the purposes of the construction works remains taxable if commercially exploited.

The change makes clear that the availability of the exemption turns on the purpose and necessity of the extraction, rather than the subsequent use of the aggregate.

“The revised guidance is a significant clarification for businesses involved in construction and infrastructure projects in Scotland,” said Reynolds.

“The previous example gave rise to uncertainty because it could be interpreted as bringing otherwise exempt aggregate within the scope of the tax simply because the material was subsequently used in the project. The revised guidance appears to move away from that approach and instead focuses on the fundamental purpose of the extraction,” he said.

McGregor said the distinction matters in practice: “For many construction projects, excavation is an unavoidable part of the works and can generate substantial quantities of aggregate. Revenue Scotland's revised example provides greater clarity on when that material may fall within the exemption and when extraction is instead undertaken for the purpose of obtaining aggregate that should be subject to tax.”

Mills added: “Given that Scottish aggregates tax is still a relatively new tax, certainty around the application of key exemptions is particularly important. The revised guidance should therefore be welcomed by taxpayers and advisers alike as it provides a clearer framework for assessing the tax treatment of aggregate arising from construction and infrastructure projects.”