Out-Law / Your Daily Need-To-Know

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 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.

This guide explains how the tax operates and highlights some of the current issues surrounding it.

Aggregates levy is charged at a flat rate of £2 for every tonne of rock, sand or gravel extracted, and proportionally for any amount under that weight.

The majority of businesses or individuals that 'exploit' aggregate within the UK are required to register with HMRC for aggregates levy. Unlike VAT, there is no threshold for registration.

To be caught by the levy, the aggregate must be 'commercially exploited'. This is defined widely so that it does not require the aggregate to be used commercially or even exploited. Aggregate falls within this requirement when it 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.

Aggregates levy can only be charged once. This means that any aggregate on which aggregates levy has already been paid does not incur further aggregates levy charges for each additional time it is 'exploited'.


There are some exemptions from aggregates levy.

Aggregate which is returned to the ground in the same form as when it was won, and in the same place, is not subject to the levy. Also, aggregate disposed of as landfill waste is not subject to aggregates levy (as it will instead be subject to landfill tax). This exception does not apply however, where the aggregate is used for the purposes of constructing any part of the landfill site as it will not be true waste.

Anything that consists completely of the following substances is exempt:

  • aggregate arising from the ground on the site of any building or proposed building, which is removed exclusively for the purpose of laying its foundations, pipes or cables. It must be lawfully extracted within the terms of any planning consent;
  • aggregate necessarily arising from navigation dredging, for example, material removed from inland waterways such as the bed of any river, canal or watercourse (whether natural or artificial) including material obtained from the banks of canals and rivers. It may also have been removed from the bed of any channel in or approach to any port or harbour (whether natural or artificial). It must have been dredged exclusively for the purpose of creating, restoring, improving or maintaining that river, canal, watercourse, channel or approach within the terms of any licence or other planning consent;
  • aggregate necessarily arising from the ground in the course of excavations to improve, maintain or construct a highway or a proposed highway. It must be won from the ground along the line or proposed line of the highway. This includes the land take approved by the planning authority, but not borrow pits nearby;
  • aggregate necessarily arising from the ground in the course of excavations to improve, maintain or construct a railway, monorail or tramway. It must be won from the ground along the line or proposed line of the railway, monorail or tramway. This includes the land take approved by the planning authority, but not borrow pits nearby
  • waste during the extraction of china clay or bull clay, or
  • spoil from the processing after extraction of industrial minerals, for example, fluorspar, sodium chloride, talc.

There are strict conditions for the various exemptions and they produce some anomalous results. For example, waste from dredging a river is exempt but waste from dredging a lake is not. This can mean that not all aggregate extracted as part of an infrastructure project will be exempt and not all types of project qualify for exemption.

There is also an exemption for aggregate which consists at least 50% of the following:

  • clay, soil, vegetable or other organic matter;
  • coal, lignite and slate;
  • processing waste resulting from the separation of coal, lignite or slate from other aggregate after extraction;
  • all spoil or waste from, or other by-products from any industrial combustion process or the smelting or refining of metal, for example, industrial slag, pulverised fuel ash and used foundry sand;
  • drill cuttings from oil exploration in UK waters, and from land drilling in the UK if licensed under specific legislation; and
  • material arising from utility works, for example, laying gas or water pipes and phone lines, if carried out under specific legislative provisions, and in specific parts of the UK.

The intended products of any of the following 'exempt processes’ that are applied to aggregate are not liable:

  • creating dimension stone, building stone, or any other type of flat stone, by intentionally cutting or otherwise shaping stone to produce one or more flat surfaces;
  • extracting certain industrial minerals;
  • the production of lime or cement from limestone, or from limestone and anything else, including shale;
  • using shale for a purpose other than construction purposes.

There are also reliefs from aggregates levy for aggregate which is

  • exported from the UK in the form of aggregate;
  • used in an exempt process after the aggregates levy has been brought to account (but the spoil, waste off cuts and other by-products resulting from the exempt process are taxable as aggregate if commercially exploited);
  • used in a prescribed industrial or agricultural process; or
  • disposed of as waste in such a manner not constituting its use for construction purposes.

For more details of aggregates levy and the exemptions see HMRC's guide AGL1.

Issues for infrastructure projects

Aggregates levy needs to be considered carefully on infrastructure projects as it can apply in unexpected situations.

Question arise 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 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.

Challenges to the regime

The tax is intended to operate as an incentive to promote recycled aggregate by increasing the cost of first used aggregate. The British Aggregates Association (BAA) has disputed the effectiveness of the tax for this purpose.

Aggregates levy was challenged by the BAA upon its introduction but this challenge was unsuccessful and at the time the European Commission decided that the system of aggregates levy was compatible with EU law. However, in 2012 the Commission annulled its decision not to bring objections against aggregates levy and began an enquiry into whether some of the exemptions result in a competitive advantage to some businesses over others. This investigation resulted in a suspension of some of the exemptions.

In March 2015 the European Commission decided that all of the exemptions bar one for shale were acceptable. The suspended exemptions were reinstated on 1 August 2015 with effect from the date the exemptions were suspended. The Commission said the exemption for shale constituted State aid and the UK government is required to claw back the benefit of it. A new exemption for using shale for a purpose other than construction purposes was added.

The BAA ended its litigation against aggregates levy in 2019. The government announced it would be conducting a comprehensive review of aggregates levy in 2019, with a view to devolving the levy to Scotland and the other devolved administrations. The Treasury issued a discussion paper in March 2019, asking for views on the impact of the levy, its effectiveness and potential reforms to the levy.