Distributed to
All registered social landlords (excluding co-ownership societies) and local authorities.

Summary
Implications for registered social landlords (RSLs) of Landfill Tax in relation to eligibility for Housing Association Grant (HAG) and (post April 1997) Social Housing Grant (SHG).

1 Introduction

1.1 The Government's Landfill Tax legislation comes into force on 1 October 1996. Primary legislation for the tax is embodied in The Finance Act which received Royal Assent on 29 April 1996. Secondary legislation dealing with more detailed implementation aspects of the tax is covered in:-

a) The Landfill Tax Regulations 1996, which cover details of implementation such as registration procedures, credits, accounting and environmental trusts provisions.

b) The Landfill Tax (Qualifying Material) Order 1996, which defines the categories of waste to which a lower rate of tax will apply.

c) The Landfill Tax (Contaminated Land) Order 1996, which sets out the provisions for exempting waste from clearing historically contaminated land.

1.2 An introduction to the issues arising out of the new Landfill Tax is contained in Information Note 1/96 issued by HM Customs and Excise. Further information may be obtained from The Landfill Tax Team, HM Customs and Excise, 4NE, Queens Dock, Liverpool L74 4AA (Fax: 0151 7038816). In addition a Landfill Tax Helpline is available on 0645 128484.

2 Applicability

2.1 Whilst registered social landlords are unlikely to be levied directly as a result of the imposition of the tax, it is likely that where such costs are levied directly or indirectly on contractors and sub-contractors involved in house-building activities for RSLs, the contractors will seek to pass on the tax, or a proportion of it, to their RSL clients.

2.2 The extent to which such costs occurring after 1 October 1996 on existing construction contracts may be charged to the client RSL depend upon the contract conditions of the building agreement entered into. It is normal practice for such agreements to provide for reimbursement only where a Government imposed tax is formally notified after the date for tender.

2.3 On new contracts for construction entered into after the implementation of the Landfill Tax on 1 October 1996, contractors will be deemed to have included the cost implications of complying with the legislation in the contract sum. The extent to which the construction costs to RSLs will increase as a result of the new tax will depend upon a variety of influences, including the nature and characteristics of the ground, the site location and the tendering climate.

2.4 Any site which is likely to require the extraction and removal of relatively large quantities of "contaminated" waste material chargeable at the higher rate and for which an exception is not applicable, is likely to be subject to significantly higher construction costs as a result of the new tax. Housing associations should ensure that the additional cost of developing such a site is notified to the independent qualified valuer commissioned to value the site prior to the negotiation of the purchase price with the site vendor.

3 Qualifying costs

3.1 The additional cost arising out of the imposition of the new Landfill Tax where properly chargeable as an addition to the contract sum on existing contracts , or occurring as part of the costs of development or redevelopment on new contracts, is eligible for HAG subject to the provisions relating to the limits set out in the Corporation's Capital Funding Procedures, Appendix 5, Chapter 4. Where the imposition of the Landfill Tax takes the costs of the scheme above these limits, the costs in excess of the limits, howsoever caused, will be regarded as non-qualifying for HAG or (post April 1997) SHG purposes.

3.2 RSLs will be expected to take all reasonable steps to minimise the overall cost effect of the new Landfill Tax, by ensuring that the cost implications are fully taken into account in negotiating the purchase price for the site.

4 Enquiries

4.1 Please direct any enquiries on this circular to the appropriate regional office of the Housing Corporation.