Contractors may have to pay millions of pounds in back tax after it emerged that HM Revenue & Customs is clamping down on projects thought exempt from the aggregates levy
The news follows a landmark case brought by HMRC against Hochtief over the £140m Glendoe hydroelectric dam, near Loch Ness in Scotland, which was completed in September 2008.
The £2 per tonne levy is designed to encourage contractors not to use freshly excavated aggregates. It is worth about £600m a year to the government.
Contractors can apply for an exemption on the grounds that the aggregate is not mixed to form new materials, remains on site or is used in a project that produces energy.
To construct the Glendoe dam, Hochtief used aggregate from a nearby quarry, but claimed exemption because it was adjacent to the dam and was subsequently flooded to form part of the overall project. HMRC claimed the exemption did not apply because the quarry was a separate site from the dam.
Although the case was won by Hochtief, HMRC may appeal and lawyers have warned it will now pursue other contractors for the levy.
One lawyer said it was unclear why HMRC had started to clamp down but said it was “a way of bringing in much-needed cash quickly”.
Ian Hyde, head of tax at Pinsent Masons, said the case could put contractors off bidding for certain types of work. He said: “It shows the way the Revenue is thinking. A million tonnes of rock were dug up on this project – so the bill would have been £2m, had HMRC won. Any building using local aggregates on site could be hit.”
A spokesperson for HMRC said it was still considering the ruling and whether to appeal.