Scottish Aggregates Tax: Options for approaching cross-border taxation – Consultation Analysis

3. Summary of Responses – Cross-border taxation

3.1 Section 2 of the consultation document set out the proposed approaches to cross-border taxation.

A. Scale of cross-border movement

3.2 The available evidence (Aggregate Minerals Survey 2023) suggests that small amounts of aggregate are moved to Scotland, in comparison to the sales of primary aggregates produced in Scotland. The survey details that in 2023, 1.296 million tonnes of sand and gravel, and 3.073 million tonnes of crushed rock were imported to Scotland. In comparison, the survey reports that total sales of primary aggregate produced in Scotland in 2023 were 21.7 million tonnes (comprising 4.1 million tonnes of sand and gravel and 17.6 million tonnes of crushed rock). Furthermore, although this is not explicitly set out in the survey, the collection and middlemen transactions, which are the focus of this consultation, will only account for a proportion of the overall small tonnage and revenue of aggregate imported into Scotland.

3.3 The consultation posed the following questions:

Questions

1. Can you provide any evidence on the scale of:

• Direct supplies (where aggregate is transported by the quarry on behalf of a middleman);
• Direct supplies (where aggregate is collected); and/or
• Indirect supplies (middlemen transactions)?

3.4 Respondents from the aggregate sector agreed that the volume of aggregates imported to Scotland is small, particularly in comparison to total Scottish production. However, they noted that even small-scale cross-border transactions can distort competition, and that middleman transactions may pose a risk for tax avoidance.

3.5 One aggregate industry stakeholder emphasised that given the relatively small scale of cross-border supplies, cross-border taxation and compliance requirements should be proportionate to avoid imposing unnecessary administrative burdens on quarry operators.

3.6 Aggregate industry respondents acknowledged the limited availability of data, and the Aggregate Minerals Survey 2023 was highlighted as the most authoritative source. It was noted however, that this Great Britain-wide survey only provides information on the flows from Scotland to rUK (and elsewhere), and does not detail the smaller inbound volumes that are the focus of the consultation. One aggregate sector stakeholder remarked that volumes are very small and referenced that sand and gravel imports from England to Scotland are detailed in the survey as 0.04 million tonnes.

B. Direct Supply: Collection scenario - where a customer based in Scotland directly collects aggregate from a rUK quarry, for use in Scotland

3.7 This section of the consultation provided an overview of direct supplies of aggregate.

3.8 Direct supplies are where aggregate is supplied from a rUK quarry directly to a Scottish based customer. The most common form of direct supply is where a rUK quarry operator supplies and delivers aggregate to a Scottish based customer. The collection scenario refers to a type of direct supply where a customer based in Scotland collects the aggregate directly from a rUK quarry, for use in Scotland rather than the transport being provided or arranged by the quarry operator.

3.9 The consultation proposed an approach based on obtaining information from customers to handle this collection scenario.

rUK quarry operator’s tax position

• rUK quarry to register and account for AGL (commercial exploitation when supply to Scottish customer made from rUK quarry). However, rUK quarry can claim AGL tax credit, evidenced by the information obtained from the customer (as same supply of aggregate moved from rUK to Scotland)
• rUK quarry to obtain information from their customer confirming where the aggregate is being transported to
• rUK quarry to register & pay SAT (commercial exploitation as aggregate has been supplied to Scottish quarry from rUK)

3.10 The consultation posed the following questions:

Questions

2. Would the approach set out in this scenario be workable for suppliers and / or customers? If there are issues, can you please specify?

3. Would the inclusion of a box on a supplier’s sales ticket to indicate the customer’s destination be easy to implement? If not, can you please provide reasons.

4. Do you think the proposed approach would create any opportunities for non-compliance?

5. Are there any alternate approaches that you think should be considered?

3.11 A variety of respondents (aggregate industry, tax professional body, sectors with an interest) considered the approach workable, provided it is underpinned by robust verification and enforcement mechanisms. They suggested using digital tools, audits, and penalties to support compliance.

3.12 One aggregate industry stakeholder noted that obtaining information from the customer would mirror existing practice under AGL, where customer declarations are already used for certain exempt uses (e.g. agricultural and industrial processes).

3.13 Other respondents from the aggregates industry, and sectors with an interest raised concerns about the practicality of this option due to its reliance on the customer for information, and the administrative burden it would place on the aggregate supplier. It was noted that in terms of compliance, Revenue Scotland and HMRC would be dependent on third-party information, which may be inaccurate or difficult to verify. Respondents also commented that it would be difficult to devise adequate sanctions for incorrect information given.

3.14 The burden on quarry operators was also highlighted, with stakeholders from the aggregate industry, sectors with an interest, and tax professional bodies noting the effort required to obtain and review information from customers when submitting returns. A particular concern was raised for small quarry businesses near the border, where many transactions are small-scale (e.g. farmers, and builders' merchants buying small quantities) and where additional bureaucracy could deter aggregate purchases.

3.15 Respondents from the aggregate industry and sectors with an interest advised that implementing this approach would require new administrative processes and staff training. It was also emphasised that the process depends on: (a) customers knowing with certainty that aggregate will be supplied to Scotland; and (b) accurately declaring that. Additionally, it was noted that reviewing such information for compliance purposes may be resource-intensive for Revenue Scotland.

3.16 Several respondents from the aggregates industry advised that the approach would be workable if registration can be completed at company level, allowing multiple quarries within a group to be captured by a single return.

3.17 Respondents (including the aggregate industry, sector with an interest, and tax professional body) also noted that the proposal would result in additional administration for businesses, as a result of having to:

• adapt processes to comply with rules and regulations in different markets;
• train staff in new procedures;
• upgrade computer software and modify sales documents and contracts; and
• maintain records to a required standard for several years.

3.18 On the proposal to include a tick box on sales tickets (question 3), a range of views were offered. One respondent felt it would be easy to implement from a technical perspective but unworkable in practice due to the reliance on the customer for information, and the increase in administrative work for quarry operators. It was additionally suggested that in the absence of rigorous checks this approach could lead to complacency.

3.19 Another respondent noted that adding a tick-box on a sales ticket would be a relatively simple mechanism for suppliers and customers. If well-designed, they felt that it could serve as a low-cost compliance tool that reduces the risk of double taxation.

3.20 Other respondents from the aggregates sector viewed the tick box option as a simple and practical solution that would support tax compliance. They noted that most modern invoicing systems allow for custom fields, so this would not be technically difficult to implement. It was additionally advised that this should be possible as the delivery address will be known. However, they noted that adding this requirement would increase administrative work for quarry operators.

3.21 It was highlighted that the ease of implementing a tick box on sales tickets would vary by company and system. For direct supplies, however, the approach was generally seen to be workable since the delivery address will be known. It was noted that implementing this proposal would present additional administration costs, however. Respondents requested further clarity on:

• the rationale for the tick box requirement;
• clear guidance on what is required, and
• details on why this approach is preferable to alternatives, such as using sales data and a single annual or quarterly submission across all relevant transactions.

3.22 In response to question 4, respondents from the aggregates industry noted that this approach could create opportunities for non-compliance, should the aggregate tax rates differ between Scotland and the rUK. Other respondents noted that for direct supplies it would be hard to conceal the destination of materials as the delivery address will be known.

3.23 It was suggested that variations in how quarry operators record information from customers (e.g. paper vs digital) could create loopholes or make enforcement more difficult. Similarly, if some operators comply while others do not, this could result in an uneven playing field – particularly for quarry operators near the border.

3.24 One respondent (an individual) acknowledged that a compliance risk exists in any system which relies on self-reporting but suggested that these could be mitigated through safeguards. They suggested, for example, implementing audits, record-keeping requirements, and penalties for mis-reporting.

3.25 Another aggregates industry respondent recommended introducing a standardised format for obtaining information from the customer to reduce ambiguity and ensure fairness. They also suggested that the legal responsibility should rest with the customer providing the information, not the supplier.

3.26 For question 5, one aggregate industry stakeholder proposed that customers should bear responsibility for the information provided and tax implications arising from cross-border movement.

3.27 Another respondent (sector with an interest) suggested that the most effective approach would be to apply the tax at the point of origin (i.e. extraction of the aggregate).

3.28 One individual proposed several alternative approaches that they felt could improve compliance. These included:

• border-based taxation for large volumes;
• a digital portal to improve traceability;
• incentives for using Scottish-sourced materials; and
• use of QR codes or tracking IDs on sales tickets.

3.29 Another stakeholder from the aggregate sector recommended a set of measures to avoid double taxation, reduce administrative burden and ensure compliance:

• Customer Responsibility Model – this would place the legal requirement to register for SAT on the Scottish-based customer collecting the material, rather than the rUK quarry.
• Annual / periodic declarations instead of per-load – regular customers could provide annual or monthly declarations of the proportion of material taken into Scotland, rather than requiring information per-ticket.
• Haulier licensing / endorsement - where third-party hauliers are used, they would be required to record destination at the point of collection.
• Simplified border threshold – a minimum threshold could be considered for very small collections to avoid excessive administrative burden on small transactions.

3.30 A tax professional body stakeholder noted that including the tick box on electronic weighbridge tickets would be easier for quarry operators to identify taxable transactions and prepare the relevant tax returns. It was additionally highlighted that this would support Revenue Scotland in reviewing and checking returns from a compliance perspective.

3.31 It was suggested that a cost-benefit analysis should be prepared to consider the options available, and whether the revenues collected from cross-border transactions are proportionate in relation to the costs for businesses, Revenue Scotland, and HMRC.

3.32 Depending on the findings from such an analysis, it was suggested that a simpler and more cost-effective approach might be to use the customer address to identify collection transactions liable for SAT. It was caveated, however, that there are also issues with this option, such as instances where the customer address differs from the delivery address.

C. Indirect Supply: Producer-based delivery

3.33 This section provided an overview of indirect supplies of aggregate.

3.34 Indirect supplies are where there are more than two links in the supply chain. For example, this includes where aggregate is moved into Scotland from a rUK based middleman who has sourced the aggregate from a rUK quarry. The producer-based delivery scenario refers to a type of indirect supply where aggregate is supplied from a rUK middleman to a Scottish customer but sourced from a rUK quarry who also delivers it to the Scottish customer on the middleman’s behalf.

Tax points

1. AGL becomes liable at the point the aggregate is supplied from the rUK quarry

2. SAT becomes liable at the point the aggregate is supplied to the Scottish customer

rUK quarry operator’s tax position

• rUK quarry to register and declare/account for AGL (commercial exploitation in rUK when supplying aggregate to rUK middleman). However, rUK quarry can make tax credit claim for AGL as aggregate has moved to Scotland
• rUK quarry will register & pay SAT (commercial exploitation when aggregate supplied from rUK quarry to Scottish customer)

3.35 The consultation detailed a proposed approach to this scenario, whereby the quarry operator would register and pay SAT for producer-based deliveries.

3.36 The consultation posed the following questions:

Questions

6. What are your views on the practical application of this approach?

7. Would this approach have a business impact, administrative and/or commercial, on aggregates suppliers and middlemen?

8. Do you think the proposed approach would create any opportunities for tax avoidance?

9. Are there any alternative approaches that you think should be considered?

3.37 One aggregate industry stakeholder noted that this proposal is broadly the most practical and workable approach, though it comes with challenges which need to be addressed. Safeguards are required to avoid unfair liability for quarry operators and to ensure administrative processes and costs are proportionate.

3.38 It was highlighted by this respondent that there are several strengths to this proposal such as:

• Minimising administrative complexity - by keeping the tax point with the quarry operators (who are already AGL taxpayers) the system builds on existing compliance structures rather than extending obligations to middlemen or end customers.
• Clarity of responsibility – assigning responsibility to a single party (the quarry operator) helps avoids confusion in multi-link supply chains.
• Alignment with current practice – the approach mirrors how AGL is currently managed, ensuring continuity and limiting disruption.
• Use of delivery location data - quarry operators already capture delivery addresses in their weighbridge and sales systems, making it possible to identify Scottish destinations with reasonable accuracy.

3.39 In response to question 6, one respondent from the aggregates industry considered this approach impractical due to the complexity of supply chains involving multiple middlemen. They noted the difficulty for quarry operators in being able to identify the end destination of the product originally supplied. It was advised, however by some respondents, that this approach could be workable for large, well-established firms with digital invoicing and internal auditing systems. It was similarly noted during the pre-consultation engagement that the quarry operator would have the delivery address on their systems and would therefore be able to account for the tax.

3.40 One aggregate industry respondent noted that if middlemen provide incomplete or incorrect information about the delivery destination, the liability would unfairly fall on the quarry operator. To avoid disputes between quarry operators and middlemen, they recommended that the declaration process should include shared accountability, with middlemen required to provide accurate destination information as part of the sales process.

3.41 One respondent (an individual) highlighted that there is a risk of avoidance through misclassification and artificially structured supply chains. They suggested that this approach could be supported by clear guidance, standardised documentation, and a digital submission platform to enable traceability.

3.42 For question 7, respondents from the aggregate industry and sectors with an interest noted that this approach would have significant impacts on both aggregate suppliers and middlemen. It was emphasised that many businesses operate nationally and distribute large volumes to various destinations on a daily basis, making it difficult to track the final destination of materials.

3.43 It was suggested that this option would result in increased administration for both quarry operators and middlemen. As a result, it was noted that some businesses may choose to exit the market rather than contend with the additional administrative burden and costs, particularly those selling small quantities.

3.44 One aggregate industry respondent noted that middlemen would have reduced direct responsibility under this approach, as they would not be required to register for SAT themselves. This minimises their obligations and avoids placing new burdens on businesses not currently within the aggregates tax system. They recommended however that accurate data-sharing would be essential to prevent disputes over liabilities between middlemen and quarry operators.

3.45 Respondents from the aggregate industry advised that this approach would particularly impact smaller or independent suppliers and middlemen due to the increased administrative burden. They noted that declaring/accounting tax as a result of cross-border middlemen sales would require changes to invoicing systems and IT software.

3.46 In response to question 8, one aggregate industry respondent felt that while the approach is broadly workable, there are opportunities for tax avoidance if robust compliance mechanisms are not in place to support it.

3.47 Respondents from the aggregates sector noted that the presence of multiple links in the supply chain complicates the accuracy of tax returns. It was noted that indirect supply chains spanning jurisdictions present opportunities for tax avoidance. For example, should the rates diverge between Scotland and the rUK the destination of aggregate could be misdeclared to benefit from lower tax rates. Also, if audit trails are incomplete, unscrupulous operators could claim exemptions wrongly/avoid tax altogether. One respondent (an individual) recommended a unified cross-border declaration system, clear guidance, and joint compliance mechanisms between HMRC and Revenue Scotland.

3.48 Some respondents from the aggregate sector advised that with producer-based deliveries all parties to the transaction know the production and delivery address so there is limited scope for avoidance. It was noted that as the same tax rate will be applied in both jurisdictions for the first year of SAT introduction, there is no incentive for tax avoidance at present, but that this may change in the future should the rates diverge.

3.49 Turning to question 9, one respondent (sector with an interest) suggested that middlemen should be responsible for administrating and paying the tax as they would be best placed to track the aggregate movement. Another respondent proposed that SAT should be applied at the point of sale, ensuring collection of the tax at source.

3.50 One respondent (an individual) offered several alternative approaches to improve compliance:

• a Single Point of Taxation (SPOT) agreement between AGL and SAT authorities;
• mandatory end-use declarations with a reversal charge mechanism;
• a licensing or registration system for cross-border suppliers; and
• a fixed apportionment or tax credit system for dual-tax transactions.

D. Indirect Supply: Over-the-counter sales - Option 1: Middlemen are exempt for over-the-counter sales

3.51 This section of the consultation provided detail on over-the-counter sales, where a rUK based middleman, such as a builders’ merchant, supplies aggregate to a Scottish based customer from their own stock of aggregates.

3.52 Two potential options were proposed for the tax treatment of middlemen to resolve the issue of double taxation. Under Option 1, over-the-counter sales would be exempt from SAT where AGL has already been paid on the aggregate.

rUK middleman

• No SAT due as AGL has already been paid further up the supply chain. A notification to Revenue Scotland may be required to declare the exempt cross-border activity

rUK quarry operator’s tax position

• rUK quarry to pay AGL (commercial exploitation in rUK when physically supplying aggregate to rUK middleman)

3.53 The consultation posed the following questions on Option 1:

Questions

10. What are your views on the practical application of Option 1? For example, would there be any administrative or commercial reasons why Option 1 would not work?

11. Do you think option 1 would create any opportunities for tax avoidance, if so can you provide examples?

12. Can a middleman distinguish between over-the-counter sales and producer-based delivery sales in their accounts?

13. Can a quarry operator distinguish between sales made and delivered to a middleman (for over-the-counter sales) and sales made to a middleman but delivered to the middleman’s customer (producer-based delivery)?

14. Would you propose any amendments to Option 1? If so, can you please provide details as to why the amendment would be an improvement.

15. What would be the business impacts of Option 1 on aggregate suppliers and middlemen?

16. What are your views on the potential requirement for middlemen to provide a declaration to Revenue Scotland to notify exempt supply? Would there be any reason why a notification would not be able to be supplied, for example?

3.54 In response to question 10, several respondents from the aggregates industry and sectors with an interest supported the proposal for an exemption, viewing it as a simpler option to resolve double taxation and easier to administrate. Given the relatively low tax revenues estimated to be raised from over-the-counter sales, and the complicated nature of middleman transactions (e.g. involving numerous persons and locations), the use of an exemption for SAT (if AGL is already paid) was generally seen to be a proportionate option.

3.55 One aggregate industry stakeholder noted that there are several strengths of this option:

• Avoids double taxation: AGL has already been paid at source, so exempting middleman sales prevents duplication and distortion.
• Low administrative burden: middlemen who are not typically part of the AGL system would not be required to register for SAT. This avoids bringing a new category of small businesses (e.g. builders’ merchants and distributors) into the tax regime unnecessarily.
• Practicality: many of these transactions involve low-volume products, so requiring SAT registration for each middleman transaction would be disproportionate to the amounts involved.
• Continuity: the quarry operator remains the primary tax point, aligning with established practice and minimising market disruption.

3.56 Another respondent (an individual) remarked, however, that although option 1 appears administratively simple, in their view there are administrative and commercial reasons why it may be less effective in practice. They noted that exempting middleman could risk market distortion, and that the lack of audit trail for middleman transactions could potentially create loopholes for tax avoidance resulting in lost revenue.

3.57 One stakeholder (sector with an interest) suggested that even if there are exemptions, the likelihood is that the original tax charges will still be passed on to the customer, without being remitted to the appropriate tax authority.

3.58 It was also noted that quarry operators are already familiar with the operation of AGL. Therefore, if a decision was made to bring middlemen within the scope of SAT and AGL for cross-border transactions, this would introduce complexity. Respondents from the quarrying sector and tax professional bodies felt that based on the available information, the administrative cost to the taxpayer of reliably following and documenting this movement, and the compliance costs, may outweigh the revenues raised. They recommended that data on the scale of over-the-counter sales and a robust cost-benefit analysis would be needed to support decision-making.

3.59 Another respondent (tax professional body) queried whether extending SAT to low volume over-the-counter transactions aligns with the broader objectives of SAT, particularly in its role to support the Scottish Government's circular economy objectives.

3.60 On question 11, one aggregates industry stakeholder acknowledged that the option 1 would create opportunities for tax avoidance but noted that this would be limited to sites near to the border of Scotland and rUK.

3.61 It was suggested that avoidance is more likely to happen if the process for claiming a AGL tax credit requires a separate SAT declaration. Unscrupulous operators may claim the AGL tax credit without declaring SAT.

3.62 Respondents (aggregates industry stakeholders and tax professional bodies) also noted that tax avoidance is more likely to occur should the tax rates diverge, as this would create an incentive for aggregate to be supplied via an exempt middleman rather than purchasing directly from quarry operators. It was suggested that should the tax rate of the two jurisdictions diverge in future, and an exemption mechanism be in place, then such a mechanism would need to be reviewed to assess whether it is still appropriate.

3.63 One individual also suggested that a loophole could be created in that sales could be misclassified as middleman transactions, or that the supply chain could be artificially re-structured to avoid paying tax.

3.64 In response to question 12, some respondents from the aggregates industry agreed that middlemen can distinguish between over-the-counter sales and producer-based delivery sales. They noted that the majority of accounting systems and administrative processes already record these as separate transaction types, making it straightforward to identify and report them. They additionally advised that invoices, sales notes, and transport records would document the delivery address and show where sales have been delivered.

3.65 Another aggregate industry stakeholder noted that while the distinction is technically possible, it is not always straightforward, particularly for smaller builders’ merchants. To ensure clarity, they recommended the following:

• clear, standard definitions of each type of sale should be provided;
• simple guidance or templates should be available for builders’ merchants to follow; and
• record-keeping requirements should be light-touch to avoid placing excessive administrative burdens on small operators.

3.66 For question 13, some aggregate industry respondents and sectors with an interest advised that quarry operators may not be able to reliably distinguish between over-the-counter sales and producer-based delivery. One respondent (sector with an interest) highlighted that unless this distinction was clearly specified at the point of sale, quarry operators would be reliant on verbal confirmation, which is open to miscommunication or misinterpretation.

3.67 Another respondent advised that in principle, quarry operators can distinguish between these two types of sales, but their ability to do so reliably will depend on how transactions are recorded and the level of information provided by the middleman.

3.68 It was also noted that as quarry operators have not previously been required to identify transactions in this way; doing so would increase their administrative burden and as a result their operating costs.

3.69 On question 14, one respondent from the aggregates sector noted that whilst they view option 1 to be the most proportionate and workable solution, a few amendments would improve fairness, compliance, and clarity. They proposed the following:

• Simplified notification requirements - such as annual declaration to reduce administrative burden, particularly for smaller operators.
• Clear guidance on evidence of AGL payment – middlemen should retain supplier invoices showing AGL was paid at source.
• Minimum threshold – to avoid disproportionate burden for very small transactions.
• Alignment with HMRC on any notification process – to minimise duplication for businesses trading in both jurisdictions.
• Clarity in definitions of over-the-counter sales versus producer-based deliveries – to ensure transactions are classified consistently.

3.70 Another respondent (an individual) proposed several amendments to option 1 to reduce opportunities for tax avoidance. Their suggestions included:

• requiring formal declarations from middlemen on end use and destination;
• linking declarations to unique transaction references;
• including a retrospective review or audit clause; and
• introducing penalties for misdeclaration or non-compliance.

3.71 Regarding question 15, one aggregate industry respondent noted that option 1 would have some impacts on quarry operators and middlemen, but that in their view it is the lease burdensome and most proportionate option compared with alternatives.

3.72 Respondents from the aggregates sector generally agreed that exempting middlemen would reduce the administrative burden for both aggregate suppliers and middlemen. One respondent suggested that this approach may be the simplest solution to resolve the issue of double taxation.

3.73 However, other respondents from the aggregates industry and sectors with an interest highlighted that there will be an unavoidable increase in administration and operating costs for both quarrying companies and middlemen. The risk is that some businesses – particularly those dealing in small volumes – might choose to discontinue such sales rather than absorb the extra costs.

3.74 Another respondent noted that option 1 has low business impacts overall, and that those that do arise are proportionate and manageable.

3.75 For question 16, some respondents including tax professional bodies supported the idea of requiring middlemen to submit a declaration to Revenue Scotland to notify exempt over-the-counter supplies and viewed this as a sensible and proportionate measure. It was highlighted by one aggregate industry stakeholders that this would ensure transparency without creating unnecessary barriers to cross-border trade. However, they recommended that digital safeguards should be implemented and supported by guidance.

3.76 Other respondents (aggregates industry and sectors with an interest) expressed uncertainty about how such a requirement could be implemented or regulated. They noted that any such requirement could result in unnecessary costs and administration.

3.77 For supplies delivered to a customer by the middleman, one quarrying sector stakeholder noted that it should be possible to record the final destination, based on delivery location. However, for aggregate collected by a customer from a middleman's premises, they advised that determining the final destination would be more difficult. They suggested that this would require requesting information directly from the customer. In their view, this may be unreliable and would require significant and potentially costly changes to point of sales systems to record additional data not currently required.

3.78 Another respondent from the aggregates sector suggested an annual notification of exempt sales would balance visibility of cross-border flows to support compliance with practicality for businesses.

E. Indirect Supply: Over-the-counter sales - Option 2: Middlemen to provide a declaration to quarry operators for over-the-counter sales, and quarry operator to register and pay SAT for producer-based delivery

3.79 This section of the consultation outlined a second option for the treatment of over-the-counter sales. Under option 2, the quarry operator would register for and pay SAT based on a declaration provided by the rUK middleman.

rUK quarry operator’s tax position

• Register & pay AGL (commercial exploitation in rUK when supplying aggregate to rUK middleman)
• Register & pay SAT (Scottish commercial exploitation when aggregate moved to Scotland)
• rUK quarry will need to obtain a declaration from the rUK middleman to indicate the amount of aggregate which has moved to the Scottish customer
• rUK quarry is responsible for paying the appropriate proportion of both AGL and SAT, based upon declaration given by middleman

3.80 The consultation posed the following questions:

Questions

17. What are your views on the practical application of option 2? For example, would there be any administrative or commercial reasons why Option 2 would not work?

18. Do you think option 2 would create any opportunities for tax avoidance, if so can you provide examples?

19. Would you propose any amendments to Option 2? If so, can you please provide details as to why the amendment would be an improvement.

20. What would be the business impacts of Option 2 on aggregate suppliers and middlemen?

3.81 In response to question 17, respondents from the aggregates industry, middlemen representatives and tax professional bodies expressed concerns about the practicality of option 2. They noted that based on the information currently available about the scale of middlemen transactions, a declaration approach would be overly complex, commercially damaging, and prone to misinterpretation. It was suggested that declarations would be impractical and introduce risk due to the reliance on the end customer providing accurate information on the final destination of the aggregate. As such, it would increase operating costs and could also impact the commercial relationship between parties as quarry operators would be liable for tax based on third-party declarations.

3.82 One aggregate industry respondent noted that many small middlemen operations would not have the accounting systems, and as they are not currently within the scope of AGL legislation there could be accidental non-compliance and enforcement impracticalities. They also advised that this option could lead to cost inflation with additional compliance costs ultimately passed on to customers, leading to higher prices for aggregates in Scotland.

3.83 Another respondent from the aggregates sector suggested that greater responsibility should rest with the middleman to ensure the correct tax is paid in a transaction where they are the only party contracting both quarry and customer. They proposed that SAT liability could be assigned to the rUK middleman after purchasing aggregate from an rUK quarry.

3.84 It was also highlighted that this option would introduce additional complexity and risk for Revenue Scotland and HMRC in conducting compliance checks. One respondent (tax professional body) recommended a cost-benefit analysis to assess whether this approach is proportionate and justified.

3.85 Respondents (aggregate industry, sectors with an interest and tax professional bodies) noted that option 2 would increase the administrative burden for both quarry operators and middlemen, particularly due to the complexity of middlemen transactions. One aggregates sector respondent advised that this could risk disrupting commercial supply chains, and that a better solution would be to maintain tax accountability closer to the point of Scottish use (e.g. through the middleman, supported by declarations and digital reporting), rather than placing responsibility on producers who may never interact with the Scottish customer.

3.86 Turning to question 18, respondents from the aggregates industry, sectors with an interest, and tax professional bodies agreed that option 2 could create multiple opportunities for tax avoidance. The complexity and cost of tracking the supply chains and verifying declarations, particularly in the absence of border checks between Scotland and rUK – would pose difficulties in ensuring tax compliance.

3.87 Respondents from the aggregates industry, sectors with an interest, and tax professional bodies noted there could be tax avoidance by unscrupulous operators if the rates were to diverge between the two jurisdictions. They advised that the temptation to mis-declare the end destination could be a way to avoid tax, with the risk heightened in supply chains involving multiple middlemen. One respondent advised that this would be difficult for Revenue Scotland to detect without extensive enforcement. They noted that enforcement would be resource-intensive and impractical, particularly given the relatively low quantity of aggregate involved in these sales.

3.88 On question 19, one respondent (an individual) proposed several amendments, which they believe would minimise the risk of tax avoidance:

• require joint liability between quarry operators and middlemen;
• mandate real-time digital declarations via a central portal;
• include third-party delivery confirmation; and
• introduce penalties and audit triggers for discrepancies.

3.89 Another respondent from the aggregate sector recommended that if option 2 were pursued, it would need major amendments to make it workable and noted that option 1 is far preferable. They proposed the following amendments:

• Minimum threshold – to limit administrative burden on smaller businesses.
• Annual / simplified reporting – annual declaration by middlemen which would reduce compliance costs while still giving Revenue Scotland visibility on these types of transactions.
• Invoice-based evidence rather than full SAT accounting – require middlemen to retain supplier invoice showing AGL was paid at source.
• Alignment of SAT and AGL rates – if the rates diverge the incentive for avoidance and misreporting increases.
• Shared responsibility with suppliers – introduce a shared liability mechanism.

3.90 Regarding question 20, respondents from the aggregates industry, sectors with an interest, and tax professional bodies noted that option 2 would have several business impacts for both quarry operators and middlemen, including:

• increased administrative burden;
• costs associated with IT system changes;
• risk of misclassification between over-the-counter sales and producer-based deliveries; and
• potential competitive distortion, particularly for suppliers operating near the border of Scotland and rUK.

F. Other complex scenarios

3.91 This section of the consultation noted that there was the potential for additional cross-border scenarios, beyond those already outlined, which may require further consideration. For example, scenarios where aggregate may cross back and forth across the border between Scotland and the rUK.

3.92 The consultation posed the following questions:

Questions

21. Are there any further cross-border scenarios that need to be addressed in advance of the introduction of SAT? If yes, please provide as much detail as possible, setting out the factual circumstances and, if possible, your views on the best way in which to deal with these scenarios.

3.93 One respondent (an individual) detailed the following cross-border scenarios, which they believe warrant further consideration to avoid risks of double taxation or tax avoidance:

• cross-border processing or blending of aggregates;
• cross-border stockpiling or temporary storage;
• cross-border public infrastructure projects; and
• hire or reuse of aggregate materials.

3.94 Another aggregates industry stakeholder noted the following scenarios which require to be considered:

• back-and-forth movements across the border;
• cross-border processing before sale (crushing/screening/blending depots);
• “connected sites” straddling the border;
• recycled/secondary materials and mixed loads (“soils, stones”);
• rejected/returned loads; and
• contract/mobile crushing across the border.

3.95 A degree of alignment for cross-border taxation under SAT and AGL was recommended to aid taxpayer understanding and ensure simplicity, particularly given that some quarry operators will need to account for both imports and exports.

3.96 Respondents also requested further clarity on how AGL and SAT tax credits will be treated in cross-border transactions. They emphasised the importance of this information for stakeholders to fully understand the implications.