Chapter 2: The Scope Of The Tax – Defining "Aggregate" And "Commercial Exploitation"
2.1 The Scotland Act 2016 provides that the devolved tax is to be charged on: (i) aggregate; (ii) when it is subject to commercial exploitation in Scotland.
2.2 In addition, the Scotland Act 2016 provides that the tax cannot be charged when the aggregate is commercially exploited for fuel.
2.3 As set out in Chapter 1, the Scottish Government intends that a devolved tax should support our ambitions on the circular economy, recognising both the environmental and economic benefits of reducing the level of primary aggregate extracted in Scotland, and encouraging the maximum possible use of existing and future alternatives in the construction sector.
2.4 This will have relevance for the scope of the tax, our approach in defining "aggregate" and "commercial exploitation", and to the exemptions and reliefs which are set out in a future Bill.
Definition of "Aggregate"
2.5 There is no single comprehensive and widely agreed definition of "aggregate". However, for the purposes of the UK levy, it is defined in section 17 of Part 2 of the Finance Act 2001 as:
- "Any rock, gravel or sand, together with whatever substances are for the time being incorporated in the rock, gravel or sand or naturally occur mixed with it."
2.6 This is a broad definition, which potentially brings a wide range of materials and products into scope. As the UK levy is intended primarily to tax new rock, sand and gravel that is used as bulk fill in construction, the UK legislation provides for a series of exclusions, exemptions and reliefs. We understand that the purpose of these is to ensure that only the targeted materials, or uses of those materials, are taxed. This is considered in detail in Chapter 3.
2.7 The Scottish Government recognises the advantages of having a consistent approach across the UK and would accordingly welcome views on the case for adopting the Finance Act 2001 definition of "aggregate" in a future Bill.
2.8 However, taking account of our Framework for Tax and our commitment to the principles of certainty, efficiency and effectiveness, we would welcome suggestions for alternative definitions – in particular any that would assist with simplification and reduce the need for exemptions and/or reliefs.
A4 – In keeping with our Framework for Tax and ambitions for a circular economy, what options should the Scottish Government consider in terms of defining "aggregate" for the purposes of a tax and on what basis?
Do your views on this have a bearing on the Scottish Government's consideration of reliefs and exemptions? If so, please provide further details.
Definition of "Commercial Exploitation"
2.9 For UK levy purposes, section 48(3) of Part 2 of the Finance Act 2001 sets out that primary aggregate can be "won" (i.e. obtained):
- "(a) by quarrying, dredging, mining or collecting it from any land or area of the seabed; or
- (b) by separating it in any other manner from any land or area of the seabed in which it is comprised"
2.10 For the UK levy, the act of "winning" the aggregate is not in and of itself considered to represent commercial exploitation. Instead, regardless of how it is won, the Finance Act 2001 sets out that the commercial exploitation of aggregate is considered to have occurred when:
- "it is subjected to exploitation in the course or furtherance of a business carried on by the person, or one of the persons, responsible for subjecting it to exploitation"
2.11 There are four key ways in which exploitation can occur, with tax triggered by whichever of these occurs first. These are summarised below:
- Aggregate is removed from: its originating site; a connected site which is registered under the same name as the originating site; a site where it had been intended to apply an exempt process to it, but this process was not applied.
- Aggregate is subject to an agreement to supply, when for example a contract is made, or the goods change hands and a document is raised.
- Aggregate is used for 'construction purposes'. This is defined as being: used as material or support in the construction or improvement of any structure; or mixed with anything as part of a process of producing mortar, concrete, tarmacadam, coated roadstone or any similar construction material.
- Aggregate is mixed with anything other than water, including for example when used to make concrete, mixed with levy-paid aggregate or mixed with non-taxable material.
2.12 There are however also a number of exceptions, as summarised below. For the UK levy, aggregate is not taxable if it:
- is moved between sites under the same registration;
- is removed to a registered site to have an exempt process applied to it;
- is removed to any premises where china clay or ball clay will be extracted from the aggregate;
- has previously been used for construction purposes (recycled aggregate);
- is being returned to the land at the site from which it was won provided that it is not mixed with any material other than water, for a purpose connected with winning aggregate or other minerals from the site*;
- is won by an agricultural or forestry business from its own site and used in an unmixed state for the purpose of that business, on that same site or on land occupied with that site.
*presuming the draft legislation relating to the Finance Bill 2022-23 is passed by the UK Parliament; this is outlined below at 3.10.
2.13 We would welcome views on the case for adopting these definitions, and exceptions, for a Scottish tax.
2.14 Further commentary and questions on a number of these issues, in particular the appropriate tax treatment in a devolved levy of recycled aggregate, exempt processes, and china/ball clay, can be found in Chapter 3.
2.15 As a particular issue, and without prejudice to any final decisions on the definition of commercial exploitation, the Scottish and UK Governments will require to work together to consider the appropriate arrangements where aggregate is moved from a site in Scotland to a site in the rest of the UK and, under current arrangements, commercial exploitation would not be deemed to have occurred (and vice versa). This is separate to consideration of the treatment of exports and imports from and to Scotland, as discussed below and in Chapter 3.
A5 – Do the UK levy definitions of "commercial exploitation" as set out above cover all relevant circumstances in which this could be deemed to occur in Scotland?
Please provide commentary for your views, including to outline any alternative or additional examples of "commercial exploitation" which you think should be covered in a future tax.
A6 – For any examples of commercial exploitation, should there be any exceptions in a devolved tax? If so, on what basis would these be appropriate?
A7 – Subject to your views on the circumstances in which commercial exploitation occurs, are there any specific exemptions which should be legislated for, and on what basis?
A8 – How should the Scottish Government treat movements of aggregates between Scotland and the rest of the UK in situations where commercial exploitation would not currently be considered to have occurred?
Treatment of imports
2.16 For the UK levy, imported aggregate is treated in the same way as aggregate originating in the UK, with the exception that there is no UK originating site.
2.17 As such, the levy becomes due when aggregates are commercially exploited in the UK, in line with the above criteria.
2.18 At the point that a devolved tax is introduced, the provisions of Schedule 1 of the Scotland Act 2016 explicitly provide for circumstances where aggregates flow across two tax jurisdictions within the UK. This will have implications both for the UK levy and a future Scottish tax.
2.19 Commenting on the implications of the Scotland Act 2016 provisions, the review of the UK levy noted that:
- "Under the legislation, once the provision has been commenced, movements of aggregate from the rest of the UK to Scotland would be relieved from the Aggregates Levy, while movements from Scotland into the rest of the UK would become subject to the Aggregates Levy on the same basis as imports."
2.20 Taking account of this and the circular economy context for the tax, the Scottish Government considers that it will be essential to tax "imports" of aggregates to Scotland, on the same basis as currently applies for the UK levy.
A9 – Do you agree that the Scottish Government should treat imports in the same way as currently applies for the UK levy, taking account of the Scotland Act 2016 provisions?
A10 – What measures might help to ensure that imports of aggregates are identified and taxed appropriately? Please provide supporting commentary.
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