Out-Law Legal Update 7 min. read

Proposed changes to UK aggregates levy exemptions

The UK government is consulting on whether to make changes to the exemptions from aggregates levy which apply for some construction operations. 

Changes being considered include the introduction of a new general exemption for aggregate necessarily arising when laying all underground utility pipes and a reduction of the scope of the ‘borrow pit’ exclusion. If the government goes ahead with the borrow pit change, it could lead to increased aggregates levy liabilities for many infrastructure projects.

  • Government consultation on treatment of aggregate removed during construction works
  • ‘Borrow pit’ exemption may no longer apply for infrastructure projects
  • New wider utility pipe exemption proposed

Aggregates levy

Aggregates levy is a UK tax on the commercial exploitation of rock, sand and gravel. It was introduced as an environmental tax to encourage the recycling of aggregate. However, in addition to applying to the quarrying industry, it often applies when aggregate is extracted in the course of an infrastructure project. There are exemptions but they are narrowly drawn.

There are considerable tensions over the scope and application of aggregates levy between the aggregates industry and those undertaking infrastructure projects. Infrastructure companies and utility companies want to keep down the cost of their projects and therefore want to minimise their exposure to aggregates levy. On the other hand, those in the aggregates industry are keen to ensure that construction companies do not get a competitive advantage by being able to use their own aggregate free of the levy instead of purchasing aggregate from a third party which would be subject to the levy.


The current consultation follows a review by the government of aggregates levy in 2019. The consultation period ends on 15 June 2021.

Infrastructure projects and ‘borrow pits’

Aggregate that is returned, unmixed with anything except water, to the land at the site where it was won is not subject to the levy because the legislation provides that it is not commercially exploited. This exclusion is intended to prevent levy being due on aggregate used for example in a quarry for a haul road.

However, a series of tax tribunal decisions has widened the interpretation of this exclusion so that it can also apply to some construction works, often large infrastructure projects such as road building schemes.

Case law has established that aggregate extracted from a ‘borrow pit’ and used, unmixed, on a nearby construction site can sometimes fall within the exclusion. When the construction project is very large and the borrow pit is relatively close to it, this can be seen as a single, large site rather than two separate sites.

A borrow pit is a temporary site used to extract aggregate for a specific purpose, which is generally restored when no longer needed.

Borrow pit aggregate used unmixed on a construction site for purposes such as building embankments can therefore be regarded as being returned to the land at the site where it was won and as therefore not commercially exploited so not subject to aggregates levy so no tax is due on it.

According to the consultation document, the government considers that this wide interpretation of the exclusion is not in line with the objective of the levy. It is therefore proposing to limit the exclusion so that it only applies where aggregate is returned to the land at the site where it was won for a purpose connected to the winning of the aggregate. This would mean that using unmixed aggregate from a quarry to construct bunds and haul roads at that quarry would not attract the levy as these are purposes connected to the winning of the aggregate. However, using unmixed aggregate from a borrow pit to construct roads, railways and other infrastructure would not be exempt from the levy because it would not involve using the aggregate for a purpose connected to the winning of aggregate.

Aggregate from a borrow pit on a construction site would only benefit from the exclusion when it was used for a purpose connected to the actual extraction, such as building a bund around the borrow pit.

Currently borrow pits tend to be used not just because of the potential aggregate levy benefits but largely to minimise trucking, both to avoid a large amount of construction traffic on roads that are unlikely to be fit for that purpose and also to minimise the CO2 created. It is likely that borrow pits would continue to be used in many cases for that reason, meaning the only beneficiary of the potential change would be HM Revenue & Customs (HMRC) and not third party aggregate providers. Any extra tax raised is unlikely to influence the behaviour of those involved in these projects whereas the current ‘site’ based approach does have the effect of ensuring local road traffic and emissions are minimised. In fact, it is possible that this change would encourage obtaining aggregate from further afield.

Farming and forestry

There is a similar exemption for using unmixed aggregate on a site for farming and forestry purposes. This exclusion enables farmers and foresters to build paths, tracks and dry-stone walls from unmixed aggregate sourced from their own land without having to register for aggregates levy.

The government believes that this exemption is still required and is not being abused. However, if the main exemption is redrafted the government said that this exemption would also need to be redrafted. It has asked for comments on the continuing need for the exemption.


Aggregate is exempt from the levy when it consists entirely of material removed from the ground along the line of an existing or proposed highway. This must be to improve or maintain the highway, or to build the proposed highway, and not for the purpose of extracting that aggregate.

HMRC’s view of this exemption is that it is intended to exempt aggregate material which is unavoidably removed from the ground along the line of the highway to make way for something connected with the building or improvement of the highway to be put in its place. This may be the highway itself, or an embankment or a pavement, for example. The exempt aggregate which arises may be used in the construction or in any other way.

However, the consultation document states that aggregate extracted solely for the purpose of using it for the building or improvement of the highway, perhaps from borrow pits, is not included in this exemption. HMRC has amended its guidance to make it clear that the exemption only covers aggregate dug unavoidably along the line of a highway to construct, improve or maintain it. It has removed references in the guidance to this including “land take approved by the planning authority” because planning consents are now more likely to include a wider area around the actual highway itself.

Railways, tramways and monorails

As with highways, there is an exemption from the levy for aggregate which consists entirely of material removed from the ground along the line of an existing or proposed railway, tramway or monorail. This must be to improve, maintain or build the railway, tramway or monorail, and not for the purpose of extracting that aggregate.

As with highways, HMRC has amended its guidance to remove references to the ground along the line of the proposed railway, tramway or monorail including “the land take approved by the planning authority”

Foundations, pipes and cables for a building

There is an exemption from the levy for aggregate which consists entirely of material removed from the ground on the site of a building, or proposed building, during excavations lawfully carried out for the modification or erection of the building, and only for laying foundations or laying any pipes or cables.

A tribunal case in 2003 decided that HMRC’s original view that this exemption covered only aggregate removed from the footprint of a building and the pipes and cables leading to it, was too narrow. As a result, this exemption is now taken to include all the aggregate removed for the specific purpose of laying foundations, pipes and cables on the whole of the area on which the builders are working – the ‘building site’. The tribunal also said that ‘building’ should include structures with a functional link to a building, such as a car park.

HMRC does not intend to change this exemption but has asked whether there any problems with its operation.

Street works and utility pipe exemption

There is an exemption for aggregate removed by utility operators carrying out works below the street under specified legislation. However, this is narrowly drafted and where pipes are laid between a road and a construction site or across agricultural land or parkland there is no general exemption for aggregate removed.

In 2016, the government consulted on options for a wider exemption that would have exempted more of the aggregate removed during pipe-laying for utilities, but it decided not to introduce a new exemption at that time.

It is now re-examining the proposal and has asked for views on a new general exemption for aggregate necessarily arising when laying all underground utility pipes.


The current exemptions and reliefs from aggregates levy are difficult to navigate and are interpreted narrowly by HMRC.

Although the new utility pipe exemption will be welcomed, if introduced, most of the proposals in the consultation document will result in the exemptions being narrowed. The narrowing of the ‘borrow pit’ exemption will be problematic for many projects and is likely to lead to significant additional aggregates levy charges, whilst achieving no environmental benefits. It could even increase CO2 emissions if instead of reusing aggregate from the site, aggregate is bought from third party providers which then has to be transported to the site.

Any narrowing of the exemptions is particularly problematic for infrastructure projects where the tax may not be considered up front. For example, the absence of an exemption on a project involving the removal of one million tonnes of aggregate will add a £2m aggregates levy charge to the project cost. 

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