Scottish Aggregates Tax administration regulations: consultation

7. Annex B: Partial Business and Regulatory Impact Assessment (BRIA)

Scottish Aggregates Tax administration regulations – Partial Business and Regulatory Impact Assessment

Section 1: Background, aims and options

Purpose and intended effect

Background

The UK Aggregates Levy (UKAL), which came into effect in April 2002, was introduced to ensure that the environmental impacts of aggregates extraction not already addressed by regulation were more fully reflected in prices. It applies to the commercial exploitation of primary aggregates – mostly crushed rock, gravel and sand used as aggregates in, for example, construction.

The Scotland Act 2016 provided the Scottish Parliament with the legislative competence to introduce a devolved replacement for UKAL. When introduced, Revenue Scotland, Scotland's tax authority for devolved taxes, will be responsible for the collection and management of the Scottish Aggregates Tax (SAT).

The Aggregates Tax and Devolved Tax Administration (Scotland) Act received Royal Assent on 12 November 2024, and the intended introduction date of SAT is 1 April 2026. To ensure the effective introduction of SAT, secondary legislation is required to specify the administration requirements associated with the tax, alongside required changes to the Revenue Scotland and Tax Powers Act 2014 (RSTPA) and the First-tier Tribunal for Scotland Tax Chamber Regulations to support the operational effectiveness of SAT.

This is a Partial Business and Regulatory Impact Assessment (BRIA), with a Final BRIA to be published alongside the Scottish Statutory Instructions that will bring into force the SAT administration regulations.

Objective

The purpose of these regulations is to ensure the effective introduction of SAT on 1 April 2026. The intent of these regulations will deliver the following outcomes:

• Effective administration regulations for SAT.
• Ensuring that SAT operates effectively in relation to the wider devolved taxes legislative regime, as set out in RSTPA, and wider legislation (i.e. First-tier Tribunal for Scotland Tax Chamber Regulations).

This draft assessment considers the business impacts associated with the introduction of secondary legislation setting out the SAT administration requirements for taxpayers and wider legislative changes to ensure that SAT can be introduced on 1 April 2026.

Rationale for Government intervention

The Scottish Government’s Framework for Tax provides the foundation from which SAT has and will be designed and delivered. The Framework ensures that decisions on tax policy are coherent and rooted in a defined set of principles and strategic objectives, rigorously appraised and developed through an established policy cycle, which puts proactive engagement with stakeholders and partners at the heart of tax policy making.

The Scottish Government intends that SAT will align with wider ambitions to deliver a fair, green and growing economy; in particular, the Scottish Government’s ambitions for a circular economy.

The circular economy aims to minimise our demand on primary resources and maximise the re-use, recycling and recovery of resources. The draft Circular Economy and Waste Route Map to 2030 sets out the importance of embedding circular construction practices to reduce resource needs, reduce waste and carbon, and encourage refurbishment and reuse. SAT will support the Scottish Government’s ambitions for a circular economy, in particular the ambition to embed circular construction practices. Although SAT in and of itself will not individually deliver the Scottish Government’s circular economy ambitions, it will serve as a price signal to complement other circular construction measures. The Scottish Government is also undertaking research via ClimateXChange, a centre for expertise on climate change, to better understand the evidence base on the role of recycled aggregates.

SAT will also add to the fiscal powers available to the Scottish Government and increase the proportion of the Scottish Budget raised in Scotland. The devolution of this power will provide scope for SAT to evolve over time, informed by Scotland-specific data collection and increased understanding of the tax and its impacts on the aggregates industry in Scotland.

Section 2: Consultation

Development phase

Prior to public consultation on the proposed introduction of SAT regulations and related changes to wider legislation, the Scottish Government has engaged a SAT expert advisory group on the proposed SAT administration regulations.

Established in January 2023, the advisory group has provided expertise informing the development of the Aggregates Tax and Devolved Taxes Administration (Scotland) Act 2024 (“the 2024 Act”) and continues to provide expertise on preparation for the implementation of SAT.

Advisory group members are drawn from a range of backgrounds, including industry representative bodies for both primary and recycled aggregate producers, aggregates consumers (including key public sector bodies), corporate stakeholders with an interest, and environmental organisations.

In particular, the SAT Advisory group includes representatives from trade bodies representing the majorities of companies producing primary and recycled aggregate in Scotland. These are:

• The British Aggregates Association, a trade body for independent small and medium size quarry operators.
• The Mineral Products Association, a trade association for the aggregates, asphalt, cement, concrete, dimension stone, lime, mortar, and industrial sand industries.
• Resource Management Association Scotland, a trade body for micro, small and medium sized resource management companies.

Revenue Scotland engagement to date has focussed on the development of the registration process and the tax return. Input has been received from representatives of the British Aggregates Association, Mineral Products Association, Chartered Institute of Taxation, Institute for Chartered Accountants of Scotland, the British Geological Survey and individual businesses. This engagement has helped Revenue Scotland develop the registration process and tax return and further engagement is planned with future SAT taxpayers in order to ensure that these processes are well understood prior to SAT being introduced on 1 April 2026.

Within Government

Land and Environmental Tax Division has a network of stakeholder organisations with an interest in tax policy. Government organisations and departments with a policy interest in proposals are contacted in respect of these proposals and consultation documents are made available to these bodies.

This includes direct contact and discussion with the following during the development phase:

• Revenue Scotland
• Civil Law and Legal System Division

Business consultation

As these regulations are most relevant to businesses who will be SAT taxpayers, business engagement is a crucial component of policy development.

Businesses, who will be SAT taxpayers, have been represented on the SAT advisory group through the development phase of this consultation and further engagement with businesses will be organised once the consultation has been launched to enable a full discussion on the technical and financial implications of the proposed secondary legislation on businesses.

Public consultation

This Partial Impact Assessment forms part of a package issued for public consultation. This consultation seeks general comment on principles and processes to allow regulations to be introduced to the Scottish Parliament in Spring 2025.

Notification of the consultation has been issued to a list of organisations previously identified as having an interest in SAT.

Section 3: Options

Sectors and groups affected

These proposals affect all persons who will be registered SAT taxpayers.

Sectors and groups directly affected can be categorised as aggregate producers, aggregate users and aggregate supply chain operators.

In 2019, the Scottish Government commissioned the British Geological Survey (BGS) to produce a survey on aggregates production in Scotland and cross-border flows. This survey (the 2019 Aggregate Minerals Survey for Scotland) contains the latest available survey results.

The 2019 BGS survey highlighted that aggregates are extracted and sourced across Scotland. Operating quarries which produce crushed rock, or quarries where sand or gravel is extracted or landed, are found in nearly all 32 local authority areas. Around 87% of aggregate produced in Scotland is crushed rock with the remainder being sand and gravel.

A Scotland specific breakdown of aggregate production is not available. However, research published by the Scottish Government suggests that the majority of total aggregate production in Scotland will be accounted for by the major companies. Indicative forecasts assign about 15% of UK taxable primary aggregate production to Scotland suggesting around 30 million tonnes of taxable aggregate produced in Scotland annually.

HMRC data suggests that there are about 150 UKAL taxpayers who have sites registered in Scotland. Between them these taxpayers have around 320 sites in Scotland. About 14 taxpayers have sites registered in both Scotland and the rest of the UK.

To improve the data on the Scottish aggregates sector, the Scottish Government has jointly commissioned, with the UK and Welsh Governments, the BGS to undertake a new aggregates survey in 2024, based on 2023 outputs. The survey findings are expected to be published in early 2025.

Option Development

This partial assessment considers three possible options in relation to introducing regulations to enable SAT to go-live on 1 April 2026. The options are:

1. Do not introduce secondary legislation in advance of SAT’s introduction date.

2. Introduce secondary legislation that aligns with the RSTPA and also broadly retains the fundamental structure of UKAL.

3. Introduce secondary legislation that takes a fundamentally different approach to RSTPA and UKAL.

Option 1 - Do not introduce secondary legislation in advance of SAT’s introduction date

Sectors and groups affected

Producers of commercial aggregate.

Benefits

There are no perceived benefits to this option. This secondary legislation is required to ensure that SAT can be properly effective when it comes into force on its proposed introduction date of 1 April 2026.

Stakeholders have engaged with the Scottish Government and Revenue Scotland in good faith on policy development over an extended period. Therefore, not introducing this secondary legislation would result in reputational damage to both the Scottish Government and Revenue Scotland and uncertainty for the sectors and groups affected as the relevant Act without the accompanying secondary legislation would not be capable of being administered by taxpayers or Revenue Scotland alike.

The issue of tax non-compliance was raised consistently by taxpayers and other stakeholders throughout the Bill development process. Revenue Scotland require the Scottish Government to introduce this secondary legislation to enable them to seek to address the concerns raised.

Costs

A lack of secondary legislation would lead to increased taxpayer uncertainty and risk as there would be, for example, no administration regulations specifying the operation of the tax. There would be costs associated with this option, including the costs of legal uncertainty of introducing a tax without a proper and effective administrative system underpinning it.

Revenue Scotland has also made significant progress in preparing for the introduction of SAT, incurring capital and resource expenditure in 2024-25 to develop IT systems and appoint new staff.

Revenue Scotland’s IT development work is also nearing completion and there are contractual commitments to suppliers that must be met.

Option 2 - Introduce secondary legislation that aligns with the RSTPA and also broadly retains the fundamental structure of UKAL

Sectors and groups affected

Producers of commercial aggregate.

Benefits

Alongside the completion of the primary legislation, secondary legislation is required to ensure that SAT can come into force on 1 April 2026.

The 2024 Act is designed within the parameters set out in the Scotland Act 2016 and its development was informed by extensive engagement with a range of expert stakeholders. Parliamentary scrutiny of the Act indicated that stakeholders broadly favour the Scottish Government aligning with the UKAL.

Retaining the core elements of the existing UK Aggregates Levy, will provide continuity and certainty for taxpayers while ensuring that the devolved tax can evolve over time to support Scottish Government specific policy objectives.

Costs

There are about 150 UKAL taxpayers who have sites registered in Scotland. In addition, taking account of the intended cross-border arrangements for SAT, a small number of quarry operators registered for UKAL in the rest of the UK, will be liable to register for and pay SAT.

Although the Scottish Government cannot quantify the number of operators, a survey based on 2019 data indicated that around 80,000 tonnes of aggregate moved from the rest of the UK to Scotland that year. During stakeholder engagement related to the 2024 Act, some members of an expert advisory group observed that extra business administration will be an unavoidable consequence of the introduction of SAT.

The Scottish Government would expect the administration costs involved in SAT to be broadly similar to those for UKAL. More specifically, although the specific details of the tax return will be set out by Revenue Scotland in future and may differ from that for UKAL, the Scottish Government expects that any tax return would draw on data that taxpayers would already be required to hold in relation to UKAL.

There will inevitably be additional administration costs for businesses which require to submit returns and data to SAT and UKAL. However, the Scottish Government does not anticipate significant additional administration costs arising from this and expects overall business costs to be broadly comparable to current UKAL costs.

A more comprehensive assessment of the costs associated with introducing SAT in a way that retains the fundamental structure of UKAL and aligns with the RSTPA was set out in the 2024 Act’s financial memorandum.

Option 3 - Introduce secondary legislation that takes a fundamentally different approach to RSTPA and UKAL

Sectors and groups affected

Producers of commercial aggregate.

Benefits

This will enable the Scottish Government to take a more distinctive approach to the tax. However, the 2024 Act has been drafted in a manner that is similar to UKAL and requires to be embedded within the RSTPA framework to be operationally effective. As such there is little scope to deviate in secondary legislation from the framework that has already been set out in the Act.

Costs

There has been strong support for a close alignment between SAT and UKAL and RSTPA. Taking a fundamentally different approach to UKAL or RSTPA would lead to business uncertainty and the potential for additional administrative costs. This would especially be the case for those businesses which require to submit returns and data to SAT and UKAL.

Regulatory And EU Alignment Impacts

Intra-UK Trade Impacts

The Scottish Government recognises that some taxpayers will commercially exploit aggregate in Scotland and the rest of the UK and will therefore have to register for both UKAL and SAT. The 2019 Aggregate Minerals Survey for Scotland shows that in 2019, approximately 2.5 million tonnes of aggregate were moved from Scotland to the rest of the UK, mainly in the form of crushed rock, while approximately 0.08 million tonnes were moved to Scotland from quarries in the rest of the UK.

Powers in relation to SAT were devolved to the Scottish Parliament in the Scotland Act 2016 and enacted in the 2024 Act. The Internal Market Act 2020 does not apply to SAT as the Act states that that United Kingdom market access principles do not apply to any legislation so far as it imposes, or relates to the imposition of, any tax, rate duty or similar charge.

However, under the proposals set out in the 2024 Act, SAT is not considered likely to have any significant impact on intra-UK trade. Primary aggregate producers throughout the UK already pay UKAL and following introduction of SAT, will only pay either UKAL or SAT. There may, however, be an impact on intra-UK trade should the SAT and UKAL tax rates diverge over time.

The Scottish Government and Revenue Scotland are working with the aggregates industry, other relevant stakeholders and the UK Government to ensure that there is a smooth transition from UKAL to SAT and that the ongoing administration of SAT does not impact on intra UK trade.

International Trade

The 2019 Aggregate Minerals Survey for Scotland shows that in 2019, approximately 3.7 million tonnes of aggregate was exported from Scotland to a destination outside the UK, while negligible amounts were imported to Scotland from outside the UK. Based on the provisions in the 2024 Act, SAT is not considered likely to have any impact on international trade. Imported aggregate would be subject to SAT on the same basis as domestic aggregate.

A tax credit would continue to be available for aggregate exported outside the UK, which maintains the current approach under UKAL.

EU Alignment

The Scottish Government’s Environment Strategy sets out our long-term strategic ambitions and policy priorities for the environment. The Strategy supports the Scottish Government’s objective to maintain or exceed EU environmental standards. One of the Strategy’s outcomes, that we use and re-use resources wisely, is strongly aligned with a key objective of SAT.

Scottish firms impact test

The Scottish firms’ impact test regards all firms with fewer than 50 full-time employees as being small businesses. The majority of small firms have fewer than 10 employees and guidelines state that a concerted effort should be made to consult them over policy proposals.

Businesses have been represented on the SAT expert advisory group through the development phase of this consultation. This includes the British Aggregates Association and Mineral Products Association who represent the interests of a significant number of organisations directly and indirectly involved in the aggregates industry. Further engagement with businesses will be organised once the consultation has been launched to enable a full discussion on the technical and financial implications of the proposed changes on Scottish firms.

Scottish Government and Revenue Scotland officials also met individually with a number of firms involved in the production of primary aggregate to discuss aspects of the proposed secondary legislation.

The main topics discussed included the registration process and the tax return. Feedback has been constructive and has resulted in products that will provide Revenue Scotland with information that will allow them to carry out necessary administration and undertake tax risk analysis, whilst also ensuring the administration burden on SAT taxpayers is kept to a minimum.

Competition Assessment

We have applied the Competition and Markets Authority Competition Filter questions and concluded that the proposals will neither directly or indirectly limit the number or range of suppliers, limit the ability of suppliers to compete or reduce suppliers' incentives to compete vigorously.

Consumer Assessment

Under the provisions set out in the 2024 Act, SAT will be paid by producers of primary aggregate.

The tax is intended to encourage the use of alternatives to primary aggregate and to be effective at altering aggregates consumption it is expected that producers will pass the cost of the tax onto consumers of aggregate.

As this is consistent with the current position for UKAL, we expect that the impact on consumers will be minimal. Actual consumer costs will, however, be dependent on the tax rate set for SAT, which will not be set until closer to the time that the tax comes into force.

Separately, any future regulations to change SAT exemptions, credits or the tax rate may have a cost implication where the cost of the tax is passed onto customers.

Test run of business forms

Those responsible for the commercial exploitation of aggregates in Scotland will be the only users of the SAT registration form and tax return. Taxpayers in Scotland, and where appropriate producers of commercial aggregate in the rest of the UK, already have systems in place to accommodate the UKAL return.

Revenue Scotland has proactively engaged stakeholders on the SAT registration process and the tax return. Feedback has been constructive and has resulted in products that will provide Revenue Scotland with information that will allow them to carry out necessary administration and undertake tax risk analysis, whilst also ensuring the administration burden on SAT taxpayers is kept to a minimum.

Digital Impact Test

The collection and management of SAT will be designed to operate online, in order to maximise convenience for the taxpayer and efficiency for Revenue Scotland. Only those responsible for the commercial exploitation of aggregate will be required to register and make tax returns, the majority of whom already submit online tax returns to HMRC. The tax administration systems will be designed to take place online in accordance with Scottish Government’s Digital Nation Principles.

Legal Aid Impact

We do not consider there to be any legal aid implications associated with these proposals.

Enforcement, sanctions, and monitoring

Revenue Scotland will have powers in relation to the collection and management of SAT and the RSTPA 2014 provides for its general functions.

The RSTPA sets out the tax administration framework that underpins all devolved taxes in Scotland, along with the powers and duties of taxpayers and Revenue Scotland. It also outlines the investigatory powers of Revenue Scotland, the process for issuing penalties in respect of non-compliant behaviour and provisions for debt enforcement.

In addition, the Scottish Tax Tribunals are in place to hear appeals against appealable decisions made by Revenue Scotland related to the fully devolved taxes.

The SAT administration regulations will bring into force the overarching administration regulations for SAT. In advance of SAT implementation changes will also be made the following regulations:

• The Revenue Scotland and Tax Powers Act (Record Keeping) Regulations 2015: this makes provisions about records which must be kept in relation to the existing devolved taxes. A provision is to be added for record keeping requirements for the Scottish Aggregates Tax.
• The Revenue Scotland and Tax Powers Act (Involved Third Party) Order 2015: this makes provisions about the inspection of third parties related to taxable disposals for the purpose of Scottish Landfill Tax. A provision is to be added with regard to the inspection of third parties related to the SAT.
• The Revenue Scotland and Tax Powers Act (Postponement of Tax Pending a Review or Appeal) Regulations 2015: this provides that where a review or appeal under the RSTPA is in progress, an LBTT taxpayer may make an application to Revenue Scotland to postpone the payment of tax, penalty or interest. A provision is to be added that a SAT taxpayer may make an application to Revenue Scotland to postpone the payment of tax, penalty or interest, where a review or appeal under the RSTPA is in progress.
• The Revenue Scotland and Tax Powers Act (Interest on Unpaid Tax and Interest Rates in General) Regulations 2015: this relates to the date on which interest on unpaid tax is payable from. An entry is to be added to the table in the regulations which specifies that interest is due from the filing date.
• The First-tier Tribunal for Scotland Tax Chamber (Procedure) Regulations and the First-tier Tribunal for Scotland Tax Chamber and Upper Tribunal for Scotland (Composition) Regulations: amendments to these regulations will allow the Scottish tax chamber to consider SAT cases.

Implementation and delivery plan

Revenue Scotland has established a programme to deliver the systems, resource, guidance and other requirements to bring SAT into force. This programme is working within schedule and will include an extensive stakeholder engagement plan in order to ensure that those who are required to interact with Revenue Scotland in relation to SAT will be well informed about their required obligations.

The secondary legislation commencement provisions will grant Revenue Scotland the power to register taxpayers from 1 December 2025. Revenue Scotland therefore plan to undertake an onboarding exercise in order to register future SAT taxpayers prior to the introduction date of 1 April 2026 in order to aid in a smooth transition from UKAL to SAT.

Post-implementation review

The Scottish Government will work with Revenue Scotland to monitor the effectiveness of these regulations. The Scottish Government’s Framework for Tax principles inform our approach to decision making, engagement and how we manage and sequence tax policy and delivery. Following the introduction of SAT, the Scottish Government will continue to take full account of the Framework’s principles and objectives, which includes evaluation.

Recommendation

After careful consideration, the Scottish Government recommends the adoption of option 2, which is to introduce secondary legislation that aligns with the RSTPA and also broadly retains the fundamental structure of UKAL .

We recommend this option on the basis that it will reduce the uncertainty for current and future taxpayers and their customers and make the transition between UKAL and SAT as smooth as possible for the businesses affected.

This option also reflects feedback from stakeholder engagement through the SAT expert advisory group, and meetings with aggregate firm representatives. In addition, parliamentary scrutiny of the Act also indicated that stakeholders broadly favour the Scottish Government aligning with the UKAL.