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Aggregates levy: does it apply to your infrastructure project?

Out-Law Analysis | 04 Nov 2016 | 4:26 pm | 3 min. read

FOCUS: Patchy exemptions from aggregates levy can result in unexpected liabilities for infrastructure projects.

HM Revenue and Customs (HMRC) is increasingly taking an aggressive line as to when aggregates levy applies, and a narrow approach to exemptions and credits. It is therefore important for both employers and contractors to identify whether the tax applies to their projects and, if so, who should pay it.

Why is aggregates levy a problem?

Aggregates levy is charged at £2 for every tonne of aggregate extracted from the ground. The business that "operates" the site has to register and pay the levy.

The aggregate must be "commercially exploited" in order to be caught by the levy. However, this term is misleading as it does not require the aggregate to be used "commercially", or even "exploited". Instead, it applies if the aggregate is:

  • removed from its originating site;
  • subject to an agreement to supply;
  • used for construction purposes; or
  • mixed with another substance other than water.

So, aggregates levy will normally apply to infrastructure projects involving either the removal of aggregate from a project site, or its use in construction on the site.

There is no general exemption from the levy when aggregate is extracted in the course of an infrastructure project. However, a number of exemptions may apply to infrastructure projects in limited circumstances.

For example, the levy is not due where extraction of the aggregate arises wholly from the construction of a highway, or in connection with a railway, monorail or tramway construction. There is also an exemption for aggregate that is removed when a building is erected, including its pipes and cables. Where exemptions are not available, a credit may be obtainable depending on the destination of the aggregate - most obviously where it is disposed of as waste to landfill.

However, the exemptions are sparse and may not cover all aggregate extracted in the course of an infrastructure project, resulting in too many infrastructure projects being caught by the levy. Attempts at reform risk the quarry industry arguing that illegal state aid has been granted and, in any event, are not the sort of measures guaranteed to grab parliamentary time - see, for example, the recent consultation on utility pipes. The fact that this uncertainty adds to the difficulties in implementing national infrastructure projects is an irony perhaps lost on HMRC.

Employers and contractors may encounter a number of difficulties when faced with the risk of the levy applying.


It can be difficult to establish whether there is a liability to aggregates levy in the first place. The exemptions and reliefs are difficult to navigate and have been badly drafted. Additionally, HMRC is taking an increasingly aggressive line on tax compliance issues beyond avoidance in an attempt to maximise tax revenues, even where the public policy for doing so is not obvious.

This is reflected in a very broad approach to the circumstances where the tax applies, and a narrow approach to exemptions and credits. As some of the reported tax tribunal decisions on aggregates levy demonstrate, HMRC often oversteps the mark in its views as to what the legislation means.

Who should pay?

The question often arises as to who is primarily liable to HMRC and so needs to be registered for the levy. This can affect some of the exemptions but also, more obviously, can determine where the risk for the tax applying lies.

As contracts often do not provide for contractors to be able to reclaim the cost of aggregates liability from employers, whether the contractor or employer is primarily liable to HMRC can make a big difference. For example, in the absence of an exemption, a project involving the removal of one million tonnes of aggregate will add a £2m aggregates levy charge to the project cost, which may wipe out a contractor's margins.

Future reform unlikely

Aggregates levy is a difficult tax, and is caught by conflicting government objectives. For political reasons, the position is unlikely to improve for businesses involved in infrastructure projects.

The tax is clearly intended to apply to the quarrying industry, distorting the market in favour of recycled aggregate. However, one of the recurring problems with the levy is that quarrying companies are not the only businesses that extract aggregate from the ground. It is for this reason that the tax is not framed by reference to the purpose of the extraction, but the fact that aggregate is extracted in the first place. Infrastructure projects are therefore brought within the scope of the tax.

Indeed, since it was first introduced, the legality of the aggregates levy exemptions have been challenged by the British Aggregates Association (BAA) on the basis that they amount to state aid, contrary to EU law. State aid refers to advantages or incentives granted by national or local governments to certain commercial companies, to the disadvantage of others. This challenge is still ongoing, but makes any move by the UK government to change the legislation fraught with difficulty.

To thwart any arguments of illegal state aid and ensure tax revenues are maximised, HMRC is expected to continue to seek to apply the levy to projects irrespective of whether, on reflection, anyone would have thought that tax should apply in the first place.

Ian Hyde is a tax expert at Pinsent Masons, the law firm behind Out-Law.com.