Breaking New Ground? Developing a Scottish tax to replace the UK Aggregates Levy Consultation Analysis Report

4. Part B – Operational Considerations

Part B of the consultation covered a range of operational issues, with views sought on a range of more detailed proposals related to tax collection and management.

Part B – Operational Considerations:

• Chapter 6: Registrations (B1-B7)
• Chapter 7: Tax returns and payments (B8-B11)
• Chapter 8: Compliance (B12-B14)
• Chapter 9: Tax Avoidance and Evasion (B15-B16)
• Chapter 10: Penalties (B17-B18)
• Chapter 11: Dispute Resolution (B19-20)

A single summary of relevant advisory group discussions and Scottish Government decisions related to all operational issues is set out at the end of this section. In a number of areas, further consultation and stakeholder engagement will be undertaken by the Scottish Government and by Revenue Scotland, to support secondary legislation and other work required in preparation for tax introduction.

Registration

Chapter 6 of the consultation paper outlined that those exploiting aggregate would be required to register for the devolved tax when it is introduced and that registered taxpayers would be required to give notification when they intend to cease commercial exploitation. Views were sought on how the process of site registration and taxpayer registration, and on-site administration overall, could be streamlined.

Views were also sought on the appropriate approach for anyone commercially exploiting only exempt aggregate not needing to register and on how the administration of cross border movements of aggregate can be made convenient and effective.

B1 – What factors should we take into consideration when making regulations regarding registration for a devolved tax?

Number of responses: 8

Two primary aggregates industry organisations called for all extracting and processing sites to be registered, including currently unregistered temporary extraction sites known as “borrow pits”, which were considered to create unfairness in the market when engaging in commercial activity. Another suggested that existing data sources such as planning permissions, the rating valuation roll, and other registers of consent should help identify those who should have to register for tax.

One of the tax, accountancy or legal organisations and a primary aggregates industry respondent suggested that the registration process be as close to the existing UKAL as possible to minimise administrative disruption.

One of the environmental organisations suggested considering the environmental performance credentials of businesses seeking to register. Other points from tax, accountancy or legal organisations included a suggestion that Revenue Scotland be given a limited period in which to decide whether to register a taxpayer, and separately that SEPA might be responsible for registration and policing, with Revenue Scotland only responsible for processing the levy and handling the payments.

An individual questioned whether quarry operators in the rest of the UK would comply with any requirements to register in Scotland

B2 – What scope is there to simplify, modernise and streamline both site and tax administration, perhaps using modern technologies?

Number of responses: 4

Two respondents from the primary aggregates industry considered that the tax should be administered online, and that devolution presented a good opportunity for digitalisation. Another indicated that they could not identify any opportunities, whilst an individual suggested that the tax be collected by HMRC.

Declaring exempt aggregate

B3 – What registration requirements should be in put in place for persons which only commercially exploit exempt aggregates, and on what basis?

Number of responses: 10

Three primary aggregates industry respondents considered that all sites should be registered, even if they only produce exempt aggregates, and submit tax returns.

Another two respondents made suggestions around a lighter-touch arrangement for producers of exempt aggregates, with a primary aggregates industry respondent suggesting that there should be a publicly available one-off notification and confirmation of exemption and one of the tax, law or legal respondents proposing an annual confirmation statement that a taxpayer has not exploited anything beyond exempt aggregates.

Separately, one of the waste and resource management respondents recommended that requirements around the registration and accreditation of recycled aggregate suppliers should be strengthened to attain a more authoritative position with regards to promoting circular economy objectives. This would allow the Scottish Government to collaborate with the industry on future incentives that promote the circular economy and linked to the respondent’s other proposals around providing tax credits for the use of recycled aggregates.

One of the tax, accountancy or legal organisations considered that, should the Scottish Government wish to take a different approach, there would be scope to take a simpler approach in the legislation, setting out the specific materials to be taxed and only requiring registration for sites producing aggregates meeting those definitions. This would remove the need to register sites producing or using exempt materials.

An environmental organisation again suggested that consideration be given to the environmental performance credentials of businesses or persons seeking to register, whilst individual respondents commented on the resources available to police any regime and, separately, repeated an earlier suggestion for HMRC to administer the tax.

B4 – Where registration is required, what information could be provided to aid Revenue Scotland in understanding the attributes of an individual site and the wider commercial landscape?

Number of respondents: 7

No key themes arose from the responses to this question, which were from respondents spread across different groupings.

Suggestions included that individual local authorities hold strict, consistent and timely controls over individual site operation which might assist Revenue Scotland. In addition, information might be collected on: the environmental attributes of sites and the environmental performance of operators, especially if different rates were to apply; on site plans, projected tonnages, description of products sold from site; the products being manufactured which have recycled alternatives; and the type of aggregate to be exploited and its proposed use.

B5 – What opportunities do you think there may be to improve the collection, processing and use of that information?

Number of responses: 5

Two primary aggregates industry respondents highlighted their call for publication of a list of all consented sites to address what was seen as unfair or illegal competition from “borrow pits”. An individual respondent suggested that investing in staff skills could help to improve the collection and usage of information.

Separately, an environmental organisation considered that SEPA might be best placed to offer guidance, whilst an individual called for investment to be made in staffing. An individual respondent noted support for continued use of quarterly returns and made no suggestions for change,

B6 – Are there other registration processes currently undertaken where the information provided could either overlap or help inform the tax registration process?

Number of responses: 3

No detailed views were provided on this question. Two of the three responding organisations were from primary aggregate industry respondents, who did not consider that other registration processes would be relevant, whilst an individual considered that there would be but did not offer comment.

Whilst not specifically in response to this question, a local authority respondent suggested in its response that there may be opportunities for collective sharing of information to assist the operation of the devolved taxation system.

Cross border movements

B7 – What factors should we take into consideration to ensure convenient and efficient tax administration of cross border movements of aggregate?

Number of responses 7:

Four respondents, including representatives from the primary aggregates industry, and tax, accountancy or legal organisations, highlighted the benefits in terms of administration, tax returns and record-keeping of minimising complexity and maintaining consistency with the current UKAL rules.

Another of the tax, accountancy or legal organisations suggested that where companies have sites in Scotland and in the rest of the UK, it would be helpful if HMRC and Revenue Scotland could work together such that a business who has paid the levy in one country is automatically relieved from reporting paying tax in another.

A primary aggregates industry respondent suggested that producers should have the ability to claim a tax rebate based on set criteria, similar to a zero VAT rating on new residential developments, whilst an individual highlighted earlier comments about the willingness of operators based in the rest of the UK to register for SAT.

4.1 Tax Returns and Payments

Chapter 7 of the consultation paper outlined the intent that the tax return would be designed to help facilitate efficient and effective compliance, as well as making the transition for taxpayers from UKAL to the devolved tax as easy as possible. Proposals relating to specific aspects of the return and payment arrangements were then set out in detail.

B8 – Do you agree with our proposal for a standard quarterly tax return cycle for the devolved tax? If you answered no, please explain your answer.

Number of responses: 11

Almost all respondents (nine) from across almost all groups explicitly agreed with the proposal to adopt a standard quarterly tax return cycle. One of the tax, accountancy or legal respondents suggested that, to increase choice and ease administration, VAT paying customers might wish to choose to follow their VAT quarterly return and payment cycle instead of the proposed quarterly tax return cycle for the devolved tax. Another noted an alternative view that it would be ideal if the arrangements for SAT were consistent with those for Scottish Landfill Tax. This would require transitional arrangements to bring businesses into line with standardised quarterly deadlines.

A further respondent is considered to be in agreement, but focused their remarks on the suggestion that producers of exempt aggregate should only have to provide an annual confirmation that they continue to produce exempt aggregate as opposed to having to make nil quarterly returns.

One individual respondent did not support adoption of a quarterly return cycle, on the basis that they considered that it would bring extra burden and costs.

B9 – What information could you provide on a Scottish tax return to aid the efficient and effective compliance of the tax?

Number of responses: 6

Four respondents, mainly involved in the primary aggregates sector, suggested that tonnages for taxable, relieved, and exempt supplies as well as moisture content claimed should be included, whilst another simply stated that the information requirement should be the same as for UKAL,

A local authority respondent considered that only the total tonnages of purchased aggregate should be included, whilst an individual suggested that the requirements be kept simple, but without specific comment.

B10 – Do you have any comments on the Scottish Government proposals regarding submitting a return and paying the tax, or the supporting information to be kept by taxpayers?

Number of responses: 5

One of the tax, accountancy or legal organisations suggested that supporting information should be consistent with that which Revenue Scotland would rely on in respect of a future investigation and should be kept for six years, consistent with UKAL regulations, to ensure consistency and aid compliance.

One primary aggregates industry respondent suggested that suppliers should be able to deduct the relevant amount of relief they feel is appropriate, with relevant justification and not pay any tax up front, rather than pay the tax then apply for a tax relief. Another noted that as long as the relevant criteria and information are requested and supplied, the same checks need to be done at some point.

An environmental organisation proposed that having differential rates in respect to environmental damage may cause taxpayers to reconsider their approach and better reflect their environmental performance in supporting accounts and documentation. An individual commented that the arrangements should be kept simple.

B11 – Do you foresee any difficulties in making claims for reliefs as part of the quarterly return process?

Number of responses: 2

Only two respondents, both from the primary aggregates industry, answered this question. Neither foresaw any issues.

4.2 Tax Compliance

Chapter 8 of the consultation outlined Revenue Scotland’s current investigative and enforcement powers, in addition to those to impose civil penalties and interest. It proposed that the same investigatory and enforcement powers would be available to Revenue Scotland in relation to the new devolved tax. These powers were outlined in detail, and views invited on specific aspects.

B12 – Do you agree that, in relation to the devolved tax, the tax authority should have the investigatory and enforcement powers set out above?

Number of responses: 11

Nine respondents from a range of respondent groups agreed that Revenue Scotland should have these powers.

Only two respondents, one of the primary aggregates industry respondents and an individual, said that Revenue Scotland should not have the suggested powers, although no justification was given for this position.

Amongst those in support, two respondents from the primary aggregates industry highlighted the importance of effective enforcement in dealing with their concerns around “borrow pits” and noted the value of there being a post-implementation working group involving Revenue Scotland and the industry to assist with this.

An environmental organisation and two tax, accountancy or legal organisations highlighted a theme around resourcing and relevant powers, including suggestions that Revenue Scotland might need to have regulatory powers to liaise and work with other Scottish Government organisations such as SEPA, or that SEPA might be best placed to lead on ‘front-line’ compliance including enquiries and inspections. One of these organisations also highlighted the importance of any sanctions being sufficiently robust to act as a deterrent.

Another tax, accountancy or legal organisation suggested that a three-year enquiry period was excessive when information is being returned quarterly and suggested a shorter time limit of one year. This would support the principles of both certainty and efficiency.

B13 – Are there any other safeguards that might need to apply to these or any other powers you think may be needed?

Number of responses: 4

Two primary aggregate industry respondents considered that having a register of sites may help bring transparency to the sector by enabling customers to check they are buying from a legitimate source.

The other two respondents did not offer any specific suggestions, with an individual simply indicating agreement and a primary aggregates industry respondent warning that it will be difficult to police the sector as an end user could extract material from adjacent land, with no way of identifying this.

B14 – Are there specific aspects of the industry that may require a different approach, and is there scope to make use of additional data and technical resources?

Number of responses: 5

One primary aggregates industry respondent suggested that better policing might be achieved by focusing on the movement of materials between sites of generation and use, mostly by tipper trucks. Another did not have specific views, except to note the potential benefits of joint working.

One of the tax, accountancy or legal organisations highlighted that any differences in tax compliance relative to UKAL could potentially create tax evasion opportunities, whilst an environmental organisation noted that additional consideration might be required if the tax was intended to take account of environmental damage and environmental performance. The other respondent answered yes but did not put forward specific suggestions.

4.3 Tax Avoidance and Evasion

Chapter 9 of the consultation paper underlined the Scottish Government’s commitment to tackle tax avoidance in relation to Scotland’s devolved taxes and confirmed that the Scottish General Anti-Avoidance Rule (GAAR) will apply to the devolved tax

B15 – Are there any areas where artificial tax avoidance might be a concern for a devolved tax? If so, what measures could be taken to reduce potential avoidance?

Number of responses: 7

A range of potential issues were raised in responses, including concerns from primary aggregates industry respondents about: planning permissions for projects being artificially expanded to facilitate “borrow pits” and thus avoiding UKAL, and the sale of aggregate being billed as another service to avoid tax.

Tax, accountancy or legal respondents highlighted the potential for any rate divergence within the UK to encourage “rate shopping” or cross-border avoidance; along with concerns about the policing of cross-border movements more generally; the potential impact of complexity; and under-reporting (both of aggregates tax and, as a consequence, VAT).

On mitigation, tax, accountancy or legal respondents reflected on the importance of reducing complexity, with one suggesting that defining specific chargeable aggregate and removing the need for exemptions and reliefs would reduce the likelihood of taxpayers making mistakes. Another considered that clarity of policy and legislative provisions would be necessary to drive compliance, and taxpayers, especially those who operate across borders, will need to be able to understand the interactions between SAT and UKAL.

B16 – Do you agree that the existing arrangements in place regarding tax evasion will be sufficient for the new devolved tax?

If no, please provide commentary to explain your views.

Number of responses: 9

Responses to this question picked up on two separate themes. Some respondents reflected on the relevance of the existing powers available to Revenue Scotland through the RSTPA 2014, whilst others commented on the existing arrangements for UKAL. Others simply responded yes, no or not sure without adding further context to indicate which aspect had been considered.

Two of the tax, accountancy or legal organisations considered that existing powers available to Revenue Scotland would be sufficient to deal with tax evasion, though one stressed that this was subject to there being adequate resource and effective policing. The importance of effective policing was also picked up by a primary aggregates industry respondent, who agreed that existing powers were sufficient, though without further comment.

A waste and resource management respondent considered that existing powers would be sufficient but did not expand on their answer.

Two primary aggregates industry respondents did not indicate a view either way but highlighted their calls for the creation of a register of all sites including those producing exempt aggregates, and establishment of means of reporting unregistered sites. This would be a useful way for the Scottish tax to be seen as distinctive, more transparent and open than UKAL. Another respondent that answered “no” focused their criticism on current UKAL arrangements and stated that tax evasion was something that should be addressed from the outset of the Scottish system.

Separately, another of the tax, accountancy or legal respondents suggested that the common law offence of fraud was an effective offence and that a new statutory offence was not needed.

4.4 Penalties

Chapter 10 of the consultation outlined the penalties that apply to existing fully devolved taxes in order to encourage compliance and deter non-compliance. It then set out the proposal to adopt this penalty framework for the new devolved tax, with minor modifications to some provisions. A summary was provided of the proposed penalties.

B17 – Do you agree the list of civil penalties set out above should apply in relation to a devolved tax on aggregates?

Number of responses: 5

All respondents, primarily tax, accountancy or legal organisations, but also with one primary aggregates industry and one waste and resource management respondent agreed with the proposed list of penalties, though one commented that the proposed penalties did not appear to address fraud.

B18 – Are there any other civil penalties that should be considered?

Number of responses: 3

No specific suggestions for other civil penalties were offered in responses.

4.5 Dispute Resolution

Chapter 11 of the consultation paper outlined proposals for taxpayers to resolve disputes when they disagree with a decision made by Revenue Scotland. Broadly the proposal was for the rules regarding reviews, appeal and mediation to be consistent with those in place for the other devolved taxes.

B19 – Do you agree with our proposals for dispute resolution in relation to a Scottish replacement tax for the UK Aggregates Levy?

Number of responses: 5

Two respondents, one from the primary aggregates industry and tax, accountancy or legal groupings, agreed with the proposals outlined in the consultation.

Separately, one of the tax, accountancy or law respondents suggesting that it would be worth considering the introduction of legislation to specifically allow for postponement of tax pending appeal against assessment, or amendment of return, in keeping with arrangements for Land and Buildings Transaction Tax, and most UK taxes.

Two other respondents indicated that they were not sure.

B20 – What, if any, other decisions not on the proposed list of appealable decisions do you think should be included and why?

No suggestions were offered in response to this question.

4.6 Part B Considerations - Advisory Group discussion

There was discussion of operational considerations at the fourth meeting of the advisory group. Topics of discussion included: the importance of ongoing dialogue between HMRC and Revenue Scotland; the potential merit in Revenue Scotland delegating certain functions to other public bodies such as SEPA, and related considerations around legal gateways; the value of a forum to discuss issues relating to the tax once introduced; the importance and challenges of addressing unregistered primary aggregate production and the importance of clear communication and ongoing engagement to raise awareness and develop Revenue Scotland guidance.

4.7 Part B Considerations - Scottish Government response

The Scottish Government welcomes the views set out in responses to these questions. In line with the approach taken for the existing devolved taxes, much of the technical detail regarding tax administration will be set out in secondary legislation or by Revenue Scotland. The Scottish Government will work with Revenue Scotland to develop the detail, including undertaking a further programme of stakeholder engagement.

• The Bill confirms that Revenue Scotland will administer the collection and management of the tax. The tax authority will consult with stakeholders on the development of the tax return and registration and on relevant compliance related matters.
• The Scottish Government intends that a person who produces taxable aggregate must be registered, and that registered persons must submit tax returns and pay tax in such periods and in such a manner as are determined by the Scottish Ministers in regulations.
• Those businesses who produce or intend to produce only certain types of exempt aggregate will be required to make a notification to Revenue Scotland but will not be required to submit tax returns. This approach is broadly in line with the current administrative requirements for UKAL taxpayers.
• Revenue Scotland will be required to keep and maintain a register of taxpayers for the purpose of collecting and managing SAT. Information from this register will be published, which will help provide transparency for Revenue Scotland, taxable persons and the public. Revenue Scotland will consult with stakeholders while determining the form and manner of the information to be published, again exemplifying a shared commitment to engagement.
• Where penalties listed in RSTPA 2014 apply to all devolved taxes, the Bill introduced to Parliament provides that they will also apply to SAT.
• The Bill also creates penalties in RSTPA 2014 that do not apply to the other devolved taxes. These are penalties payable for failure to provide a security, failure to notify Revenue Scotland of the production of exempt aggregate when required, failure to appoint a tax representative in accordance with regulations when required, incorrectly declaring that aggregate will be used in an industrial or agricultural process for which a tax credit is claimed and failure to notify of cessation of group treatment. These additions replicate penalties found in UKAL.
• The Bill includes a provision which may impose a charge on those who purchase taxable aggregate from unregistered suppliers.