Technical Briefings
01 October 2010
Tax savings for cleaning up contaminated land
The Finance Act 2001 brought in a new tax relief as an incentive for developers to clean up and use brownfield sites. The 2009 Finance Act extended the relief further, as explained in the following article.
How do we qualify for the relief?
The land must fulfil the following criteria:
- The land must be in the UK and acquired by a company for the purposes of its trade or property letting business
- The relief is only available to businesses not to individuals or partnerships
- The land must have been in a contaminated state at the time of acquisition - this means there are substances in, on or under the land which may, or do, cause harm to humans or eco-systems, or which may, or are polluting inland waterways, ground water or near-shore coastal waters. Contamination has been specifically extended in the Finance Act 2009 to cover Japanese knotweed
- Nuclear sites are specifically excluded and most naturally-occurring contaminants are ineligible, EXCEPT that relief has been specifically extended to cover radon gas, arsenic and Japanese knotweed
- The contamination cannot have been caused by the action or inaction of the acquiring company or anyone connected with them
- The remediation costs must have been incurred since 11th May 2001 and the relief is available in the year of expenditure
- Subsidised expenditure e.g. grant funding, is excluded
The costs that can be included in a claim for relief are:
- preparatory activities, e.g. consultancy fees associated with site investigations, risk assessments, development of remediation strategies and regulatory liaison, as well as laboratory costs. Note that preparatory activities can only be claimed for if the site is shown to be contaminated and is subsequently remediated
- capital expenditure and employee cost, for example capital cost expenditure on equipment and materials required as part of the remediation strategy (e.g. gas membranes) and Company employee time spent on dealing with contamination issues
- sub-contractor expenditure, e.g. all costs associated with remediation contractors, as well as consultants fees during the remediation phase and laboratory costs.
The Finance Act 2009 brought in additional heads of qualifying expenditure, and these include:
- removal of post tensioned concrete heavyweight construction
- removal of building foundations and machinery bases, reinforced pilecaps and reinforced concrete basements
- removal of below ground redundant services
- the cost of relevant preparatory activities associated with the above items.
There is a wide range of works that can be included, such as the stripping out and removal of asbestos, redundant petrol storage tanks on abandoned petrol filling stations and so on.
How much is the relief worth?
The relief is given as a tax credit of 150% of qualifying costs. For example, if X Ltd, which pays tax at 28%, spends £500,000 on qualifying land remediation works, it can write off £750,000 against its tax bill. This means that it is effectively getting tax relief at 42% (that is 1½ times 28%) for the costs incurred.
How do we claim?
The claim is made as part of the company's corporation tax return that covers the time when the expenditure is incurred.
HM Revenue & Customs are likely to require supporting evidence to prove that the claim is valid, and so getting proper advice before undertaking remedial work is essential if the claim is to be maximised.
Our tax return has already gone to the Revenue. What can we do?
All is not lost! Amended tax returns can be sent to the Revenue to claim any relief that has been overlooked. Following changes that came in on 1st April this year, amended returns can be sent in in respect of the last four years. So, if you have carried out work three or four years ago, time is running out to put the claim together and get the amended return in. Naturally, if you would like any assistance with this, we would be happy to help.