Private waste companies appeal to Treasury over “unfair” council VAT advantage

Waste companies have protested to the Treasury over a recent clarification of VAT rules that gives an apparent advantage to council-owned waste companies bidding for business waste collection contracts.
According to the Environmental Services Association (ESA), which represents some of the UK's largest private waste companies, the recent announcement by the Revenue & Customs that council operators were now exempt from VAT would give them an unfair advantage.

The Financial Times  (FT) reported that the Revenue and Customs had decided the activity fell under the Principal VAT Directive, which says local authorities are not “taxable persons” in respect of their activities, “even where they collect dues, fees or contributions”. It also concluded that its decision would not distort the market.

Ian Goodfellow, ESA chairman, told the Treasury that he disagreed with the Revenue’s argument that the change would not have much market impact because only a few councils operated in the sector.
“It has been estimated that [local authority] direct service organisations already serve 38 per cent of SMEs and we know of at least one local authority already which has seen the change as giving them a significant advantage in seeking new SME customers,” he wrote.

Matthew Farrow, head of policy for the ESA, told the FT that while that while commercial customers could be able to reclaim the VAT on privately-delivered waste collection, there would a considerable cashflow advantage for companies that used council-owned service.

In response, Revenue and Customs said that the legislation would be “constantly reviewed” to make sure competition was not being distorted. It told the FT: “Local authorities do not charge VAT on activities they undertake under legislation which is different from the statute governing businesses, unless this would significantly distort competition. They collect trade waste under such legislation.”