UK: Environment Bulletin: Environment Policy

New Tax Decision On Site Restoration Costs

Section 91A of the Income and Corporation Taxes Act 1988 provides that certain site restoration payments are deductible for tax purposes. For corporation tax purposes, a site restoration payment (as defined in section 91A) which is made in the course of carrying on a trade can be deducted against the profits of the trade for the period in which the payment is made. There are equivalent provisions for income tax in the Income Tax (Trading and Other Income) Act 2005.

Section 91A was introduced as a result of the decision in Rolfe (Inspector of Taxes) v Wimpey Waste Management Limited 1989 STC 454). This case held that a site restoration payment was capital and so could not be deducted against profits of the trade since it was not revenue expenditure. Section 91A provides that a site restoration payment (which would be a capital payment as a result of Wimpey) is deductible when it is made, except to the extent that any amount has already been allowed as a deduction in a preceding period. It has been suggested that this implies that a provision for capital expenditure is allowable, on the basis that a deduction could only be given before payment if a provision for the payment is allowable. However the view of HMRC, confirmed in a recent Special Commissioners' case (Dispit Ltd v Revenue & Customs Commissioners SpC 579 (2007)), is that rather than extending the deduction to provisions for capital expenditure, the legislation is simply ensuring that a deduction is not allowed twice. It does this by denying a deduction for expenditure that has already been relieved before payment, as a result of a provision made before the Wimpey decision when it would have been in respect of a revenue item and so deductible.

If accounting provisions have been made for site restoration payments, do not assume that the provisions will be deductible for tax purposes. This latest case confirms HMRC's view that a provision for a capital site restoration payment is not deductible and a deduction will only be given when the payment is made (although a provision for revenue expenditure would generally be allowable on normal principles).

Government Publishes Energy White Paper

A white paper setting out the government's energy strategy, with particular emphasis on climate change responses and the provision of clean and affordable energy was recently published by the DTI. The government sees the priorities as including:

• The cutting of CO2 emissions by some 60% by about 2050, with real progress by 2020;

• The maintenance of the reliability of energy supplies;

• The promotion of competitive markets in the UK;

• Ensuring that every home is adequately and affordably heated.

As expected, the government, faced with the need to look for a decline in fossil fuel use, is giving emphasis to new nuclear facilities. For more information on these matters please contact the Planning and Environment Group.

Dangerous Substances Regulations Amended

Changes to dangerous substances requirements came into force on 30 June 2007. The Controls on Dangerous Substances and Preparations (Amendment) Regulations 2007 SI2007 No 1596 provide a substitute schedule 1 to the Controls on Dangerous Substances and Preparations Regulations 2006. The changes are necessary to give effect to EU directive 2006/139/EC. Schedule 1 deals with substances, preparations and restrictions relating to a range of dangerous substances, in the main arsenic compounds.

Emissions Trading - Amending Regulations

The Income Tax (Trading and Other Income) Act 2005 provides for the Treasury to specify energy saving items the cost of which can be deducted by residential landlords when calculating the profits of their business. The Energy Saving Items Regulations 2007 SI2007 No 831 came into force on 6 April and provide a substitute list of items which are deductible for income tax purposes. These include:

• Hot water system insulation;

• Draught-proofing;

• Solid wall insulation;

• Floor insulation.

The maximum amount of expenditure which can be taken into account is £1,500 per dwelling house. The new Regulations replace similarly named provisions of 2004, 2005 and 2006.

Contaminated Land - Appeal Succeeds

In the Winter 2006 edition of the Environment Bulletin we reported on a High Court case which concluded that National Grid Gas plc had inherited substantial liabilities for contaminated land from its statutory predecessors. Because of the important issues arising from the case, the appeal bypassed the Court of Appeal and was heard by the House of Lords. Their decision was issued recently. The High Court's decision was overturned. In R (National Grid Gas plc) -v- Environment Agency (2007) UK HL30, the Lords heard that, following housing development, a resident had discovered a pit filled with coal tar in his back garden. The site was subsequently classified as contaminated land and steps were taken by the Environment Agency to secure clean up. The Agency had identified two potential responsible parties, the residents as current owners of the site and NGG, by virtue of attributed liability down the 90 year chain of ownership transfers described in the case. It seems that the contamination had originally arisen from the use of the land by various gas boards and, by a series of statutory and other transactions involving British Gas plc and others, the ownership of the land had passed though the hands of NGG. The Environment Agency had chosen to pursue NGG and the matter was referred by the company to the High Court for a decision. The view of the High Court judge, supporting the Environmental Protection Act's "polluter pays" culture and its retrospective effect, was not accepted by the House of Lords. The Lords decided that the emphasis in the legislation was on the actual polluter. During the transactional history whereby NGG had come into ownership of the land in question, the liabilities of the state owned area boards were expressly limited to those existing "immediately before" the transfer date. The House of Lords concluded that such language could encompass a liability created by parliament, but very careful statutory language would be needed to impose on a company innocent of any polluting activity a liability to pay for works to remedy pollution caused by others. They concluded that it would be impossible to read into the legislation any intention that parliament should impose liabilities on a public company where shares had been offered at large on one basis, ie that there were no ongoing liabilities of this sort, and then to impose those retrospectively. The Court found that there was no liability on NGG.

The effect of this case is to throw the liability either back onto individual landowners, no doubt not resourced to pay, or on the local authorities. The case is very important in that it could constrain the right of the regulator to go back to past owners to service these types of long term liabilities.

New Natuaral Habitats Regulations

European Directives on the conservation of wild birds and of natural habitats have been in force since 1979 and 1992. For the most part UK government has secured implementation of those directives but there remain further requirements which have now been dealt with under two sets of regulations. Both of these came into force on 21 August 2007.

These provisions apply to those marine areas where the UK has jurisdiction beyond its territorial sea and cover offshore marine areas, installations and certain ships and aircraft. They make provision for:

• Conservation of natural habitats and habitats of species, including the identification and protection of European offshore marine sites, site protection and management and the requirement for plans and projects.

• The protection of species including specified birds and wild animals as well as plants.

• The provision for licences to undertake activities normally banned by the regulations.

• Provisions for enforcement, including criminal offences.

These regulations provide for significant amendments to the Conservation (Natural Habitats Etc) Regulations 1994.

The changes include the following:

• National Park Authorities become responsible in relation to marine areas and European marine sites, where appropriate.

• Specific duties are placed on the Secretary of State and Welsh Ministers in relation to surveillance of the conservation status of natural habitat types.

• A ban on the introduction from any ship into territorial waters of any live animal or plant not native to Great Britain.

• New enforcement provisions, particularly in relation to the disturbance of a European protected species.

• Obligations on plan making authorities to have regard in their land use plans to any implications for any European site in Great Britain or any offshore marine site.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.