A new tax relief for the remediation of contaminated land was introduced in the 2001 budget. Where the rules were satisfied, expenditure incurred after 10th May 2001 on remediation received preferential treatment for tax purposes.

An extra 50% is added to the expenditure for the purposes of the tax deduction. A company spending £100,000 on cleaning up land is treated for tax purposes as if it had spent £150,000. Put another way, if it is subject to corporation tax at the full rate of 30%, it effectively gets relief for remediation work at a rate of 45%.

Where the expenditure would normally be on capital account, for example in the case of a property investor, or a trader using the land for its own premises, then relief for the clean up cost is available as it is incurred. (Normally such expenditure would only be allowable when the property is sold, perhaps many years hence). In addition, the 50% “bonus” applies here also.

Qualifying expenditure for the meaning of this tax relief includes all consultancy work undertaken by Wilbourn Associates as well as contractors employed to remediate the land in question.

Working closely with Tony Jenkinson Tax Consultancy, Wilbourn Associates can use its services to provide profitable solutions to remediating contamination land.

We can offer advice support and consultancy in a complex area where substantial profits could be made.

For further information on Browfield Tax Consultancy please contact us for details.

If You Are A UK Tax Paying
Company But Not A Polluter?

1 Main features
A new tax relief for the remediation of contaminated land was introduced in the 2001 Budget. Where the rules are satisfied, expenditure incurred after 10 May 2001 on remediation receives preferential treatment for tax purposes.

There was initial concern that the relief would not apply to property developers. However, it has now been confirmed that developers can obtain this relief, as well as those holding land either as an investment or for the purposes of their own trade.

The two main consequences are:

An extra 50% is added to the expenditure for the purposes of the tax deduction. A company spending £100,000 on cleaning up land is treated for tax purposes as if it had spent £150,000. Put another way, if it is subject to corporation tax at the full rate of 30%, it effectively gets relief for remediation work at a rate of 45%.

Where the expenditure would normally be on capital account, for example in the case of a property investor, or a trader using the land for its own premises, then relief for the clean-up cost is available as it is incurred. (Normally such expenditure would only be allowable when the property is sold, perhaps many years hence.) In addition, the 50% "bonus" applies here also.

As with most tax reliefs, there are many rules, traps and opportunities. The following is a summary of the main rules. Specific advice should be taken for each situation.

2 Summary of rules

2.1	The relief is only available to companies: not individuals, partnerships or trusts.
2.2	The company must acquire the land in a contaminated state. It is important that the company obtains an interest in the land (which may be freehold, leasehold, a license or an option). Expenditure prior to acquisition can qualify provided that acquisition follows.
2.3	The expenditure that qualifies is broadly the extra cost, as compared with the cost if there had been no contamination. Ordinary site preparation expenditure does not qualify, but assessment costs can qualify.
2.4	It is not necessary to remove the polluting material. Treatment on site can qualify.
2.5	Where remediation work is carried out in-house, relief is limited to employee and material costs. There are detailed rules for what may be included in employee costs, in terms of salaries, national insurance contributions, and pension contributions. The relief covers all or part of the cost of employees and directors who are directly engaged in remediation work for at least 20% of their time. The cost of administrative and secretarial staff cannot be claimed.
2.6	Where remediation work is sub-contracted, the position is simpler and more generous: the full cost of paying the sub-contractor for remediation work can be claimed, without reference to the actual employee or material costs. This means that, in effect, the sub-contractor's administrative overheads, haulage and other costs, and profit margin all qualify for relief.
2.7	The above only applies however where the sub-contractor is independent. There are further rules covering a sub-contractor within the same group, broadly along the lines of in-house work.
2.8	Relief is restricted where the cost is offset by grants or subsidies, or met by other persons. This may be an issue where a payment is made under warranties or indemnities.
2.9	It is essential that the company that acquires the property does not add to the contamination, either by action or inaction. If it does, it could be disqualified. This is potentially a harsh rule, as even a brief delay in dealing with a continuing cause of contamination could mean that all relief is lost. It is therefore important to act quickly to prevent the condition worsening.
2.10	The rules also preclude relief if the contamination took place while the land was in the hands of a connected party. This can mean that it is inadvisable to buy the shares of the company which holds the land, even if the contamination took place long ago: it may be better just to buy the land. There are of course many other tax, legal and commercial issues to consider on an acquisition. Where it is commercially necessary to buy the shares, planning techniques may be available to ensure that the relief is not lost.
2.11	The timing of relief may be when the expenditure is incurred, or (particularly in the case of a developer) when the cost is deducted in the accounts. An investment company may obtain relief more quickly than a developer.
2.12	Where a company cannot make use of the relief, because it has excess tax losses, then it can instead apply to the Revenue for a cash payment of 24% of the qualifying expenditure. This compares to an effective 45% tax relief for a company subject to the full rate of corporation tax. In most cases it will be better to carry forward tax losses and get the eventual benefit at 45%; but 24% in cash may be attractive where there are cash flow concerns.
2.13	There are special rules for life assurance companies, and anti-avoidance provisions.
2.14	The corporation tax relief should be distinguished from the landfill tax exemption for contaminated materials. They will often both apply in the same situations, but have different sets of rules.

3 Key definitions

3.1	Contamination is defined widely. It is necessary to identify "substances" in, on or under the land, as a result of which "harm" is being caused or there is a possibility of harm being caused; or pollution of controlled waters is being, or is likely to be, caused. Nuclear sites are however excluded.
3.2	Substance means any natural or artificial substance, whether in solid or liquid form or in the form of a gas or vapour.
3.3	Harm means harm to the health of living organisms, interference with the ecological systems of which any living organisms form part, offence to the senses of human beings, or damage to property.
3.4	Pollution of controlled waters means the entry into controlled waters of any poisonous, noxious or polluting matter or any solid waste matter.
3.5	Land includes the buildings on the land (so for example the removal of asbestos within buildings would qualify).
There remain some grey areas, for example contamination by noxious plants such as knotweed, or by insects such as termites. Generally however, the definitions will cover most types of contamination.

4 Observations