In Durham Company Limited v HMRC and HM Treasury and Local Government Association1 , the Upper Tribunal (UT) has confirmed that local authorities arranging commercial waste collection generally do so using powers derived from section 45, Environmental Protection Act 1990 (EPA 1990). The UT was satisfied that this constitutes a “special purpose regime” for the purposes of section 41(1), Value Added Tax Act 1994 (VATA) and Article 13(1) of the VAT Directive, making those activities exempt from VAT.
The Durham Company Limited (TDC), is a business providing commercial waste collection services and is required to charge VAT at the standard rate.
Many local authorities (LAs) collect household and, if requested by the occupier of premises in its area, commercial waste in their capacity as Waste Collection Authorities (WCAs), for the purposes of EPA 1990. When collecting commercial waste, WCAs must recover (and generally do recover) a reasonable charge unless they consider it would be inappropriate to do so.
Under section 41A(1), VATA, and Article 13 of the VAT Directive, charges imposed by a public authority (while acting as a public authority) engaged in providing services it is obliged to provide under statute, are exempt from VAT unless this could lead to a significant distortion of competition.
Believing it had been suffering from unfair competition from a growing number of LAs providing the same or similar services as TDC, the company applied to the High Court for judicial review of HMRC, HM Treasury and the Local Government Association’s decision not to collect VAT on waste collection services provided by LAs. The High Court referred the matter to the UT to determine whether a WCA providing such services was carrying out “activities in which it is engaged as a public authority” within the meaning of section 41A(1), VATA and Article 13 of the VAT Directive.
The UT noted that a court is required to analyse all the conditions laid down by national law for the pursuit of an activity (in this case, commercial waste collection) in order to determine whether that activity is engaged in under a special regime applicable only to public bodies (eg pursuant to public powers), or under the same legal conditions applicable to private economic operators (Fazenda Publica v Camara Municipal do Porto (Fazenda) 2 ).
TDC argued that the WCAs effectively choose to go into business providing the services, doing so in competition with private sector companies under the same (or essentially the same) legal conditions. Some LAs operate under commercial terms and conditions, individually negotiated, and employ business development managers to “promote” their services, including the VAT‑free nature of their services.
The Respondents drew the UT’s attention to the fact that LAs are subject to a number of duties and restrictions not applicable to private sector companies, including:
- to arrange for the collection of commercial waste, if requested, by the occupier of commercial premises in its area (section 45, EPA 1990)
- to set their charges for the collection of waste on a costs recovery basis only (ie non-profit)
- in setting those charges, to do anything which in their opinion is necessary or expedient to minimise the quantities of controlled waste generated in their area to ensure that land and highways, streets and public areas, are kept clean of litter and refuse
- to inform residents about their waste collecting responsibilities and encourage business to dispose of waste lawfully.
The UT agreed that LAs derive their authority to collect commercial waste from section 45 EPA 1990 and that the above duties under EPA 1990 restrict LAs’ ability to carry out this activity in a way different from the freedom afforded to private companies. This was sufficient to constitute a “special regime”.
Accordingly, the UT concluded that where an LA supplies trade waste collection services to business customers in its area, in performance of its statutory duty under section 45, EPA 1990, those services are “activities in which it is engaged as a public authority”, within the meaning of section 41A(1), VATA, and Article 13 of the VAT Directive.
As to the competition proviso, the UT explained it would be a matter for the First-tier Tribunal (FTT) to consider whether LA activity in this sphere was anti-competitive, taking into account the nature and scale of each LA’s operations and the market conditions it operated in.
The UT has confirmed, applying Fazenda, that the VAT treatment of a LA supply does not depend on the nature of the activity itself but whether it is carried out under a “special regime” applicable to bodies governed either by public law, or law applicable to all operators.
The UT has also provided some helpful analysis on what can constitute a “special regime”. In particular, while a LA acting in its own area will be able to rely on the VAT exemption, there was agreement between the parties and the UT that a LA carrying out the same activities via a company outside its area (which LAs are also entitled to do) would not benefit from the same VAT exemption in respect of those activities.
A copy of the decision can be found here.