OG55 The Landfill Communities Fund

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Policy Statement/Overview

IMPORTANT NOTE

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  • The guidance has not undergone an extensive review at this stage; it will be reviewed and renumbered at a later date.
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Summary of the guidance

Casework Guidance

Please read the IMPORTANT NOTE on the front page

OG 55 A1

OG 55 A1 Overview - 17 January 2012

 

1  What is the purpose of the Fund?

Due to the increase in domestic and industrial waste being produced, HM Government decided to introduce a tax to encourage consumers and companies to produce less waste and to recover value from the waste produced. The Landfill Tax was introduced on 1 October 1996. Under the Landfill Communities Fund (formerly the Landfill Tax Credit Scheme) landfill operators can claim a credit of up to a limit of their tax liability to HM Revenue & Customs (HMRC) if they make qualifying contributions to Environmental Bodies (EBs).

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2  ENTRUST

ENTRUST is a not-for-profit body in the private sector which regulates the Landfill Communities Fund (LCF) on behalf of HM Revenue & Customs. It was formed in 1996 through powers conferred in the Finance Act 1996. Its mandate is to approve and enrol EBs, after which they are eligible to receive qualifying contributions.

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3  What type of projects can be funded through the Landfill Communities Fund?

EBs can use LCF monies to undertake projects which meet the criteria of the Landfill Tax Regulations 1996 ("the Regulations"). The scope of these projects is described in the Regulations using a number of approved objects, as summarised on ENTRUST's website as follows:

  •  Object A: The remediation or restoration of land which can not now be used because of a ceased activity that used to take place there
  • Object B: The reduction, prevention or mitigation of effects of pollution that has resulted, or may result, from an activity which has now ceased land;
  • Object D: The provision, maintenance or improvement of a public park or other general amenity within 10 miles of a landfill site
  • Object DA: The conservation of a specific species or a specific habitat where it naturally occurs
  • Object E: The repair, maintenance or restoration of a Place of Worship or a place of Architectural Importance within 10 miles of a landfill site
  • Object F: The provision of financial, administrative or other similar services by one organisation enrolled with ENTRUST to another.

* Objects C and CC of the Regulations were removed on the 1st April 2003.

For objects which are acceptable both to ENTRUST and to the Charity Commission, see the model objects in section 3 of OG 55 B1.

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4  Enrolment by ENTRUST

To be enrolled by ENTRUST as an environmental body (EB), a charity's governing document must contain one or more objects that are the same or similar to one or more of the approved objects in the landfill tax regulations. ENTRUST also has other requirements before enrolment that are to do with the control and management of the charity.

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5  Environmental Bodies

A charity can be an EB as long as it has objects that include one or more of the ENTRUST approved objects. It can then be enrolled as an EB and be eligible to receive qualifying contributions from landfill operators.

A Distributive Environmental Body is an organisation that is enrolled with ENTRUST which helps others to access qualifying contributions. Not all require those they help to become EBs themselves.

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6  Contributing third parties

When a landfill operator makes a qualifying contribution to an EB it can only claim a tax credit of 90% of the contribution made, up to the maximum percentage of the total tax liability permitted by HMRC. This percentage is liable to change each year and is currently 6.2%. (The permitted percentage is generally between  5.5% and 7%. For details of the allowances refer to the HMRC’s guide to landfill tax). The remaining 10% is paid by the operator itself without any tax credit, but the operator can be indemnified by an independent Contributing Third Party (CTP). CTPs are very diverse and include major PLCs and individuals and can come from the private, public, voluntary or charitable sector. The indemnity:

  • must be given by an independent third party which may not be an EB, a company corporately associated with an EB or a contractor to an EB;
  • must be satisfied by payment  from the third party directly to the landfill operator (not through the EB);
  • must not benefit the CTP unless that benefit is widely shared with others;
  • must be notified to HMRC giving the name of the CTP and the date and the amount of the payment; and
  • must not pass through the EBs accounts.

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7  An example of how the Landfill Communities Fund works in practice

  1. The landfill operator's landfill tax liability is, say, £100,000.
  2. Based on the current 6.2% tax liability allowance, 93.8% of the tax liability must in any case be paid to HMRC - £93,800.
  3. The landfill operator can obtain relief for up to the remaining 6.2% of the tax liability - i.e. £6,200 - if he makes qualifying contributions to EBs to be spent on the approved objects.
  4. Landfill operators can only set 90% of the value of their qualifying contributions against the tax liability. Therefore, the operator must make qualifying contributions totalling at least £6,889 in order to remit the whole of the £6,200 tax liability.
  5. The landfill operator must pay the 10% balance - i.e. £689 - himself. But he can be indemnified by a third party which has an interest in ensuring that the whole qualifying contribution of £6,889 is received by EBs.
  6. If the qualifying contributions made to the EB by the landfill operator total only, say, £5,000, only £4,500 of the tax liability is remitted. The operator therefore has to pay a further £1,700 to HMRC.  

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OG 55 B1

OG 55 B1  Charities and the Landfill Communities Fund - 17 January 2012

 

1  Can qualifying contributions be held on charitable trusts?

 

Qualifying contributions under the Landfill Communities Fund (LCF) may be held on charitable trusts, which means that an organisation set up to receive payments under the scheme may be charitable provided that all its objects, including its "approved objects" are limited to those which are charitable.  However, qualifying contributions can only be applied for approved objects, so if a charity also has objects which are not approved objects, the qualifying contributions will be held on special trust for those of its objects which are approved.

New organisations may be set up specifically to receive and benefit from qualifying contributions under the LCF. Environmental purposes are generally fourth head, and acceptable charitable objects are discussed at section 3 below.

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2  Amendment of objects

The literature produced by ENTRUST states that if an applicant for enrolment's objects clause is too general in nature, or makes no mention of works that closely match the objects in the landfill tax regulations, the organisation will need to formally amend the wording or insert a clause so that this requirement is met.

Charities may wish to amend their objects in order to enrol with ENTRUST and benefit from the LCF. This could range from a minor change of wording in order to comply with the requirements of ENTRUST, to the addition of a totally new object. Our policy when dealing with amendments to objects is that we should be flexible and imaginative, but any change must not represent a fundamental departure from the existing objects (unless the governing document confers on the charity an unlimited power to alter or extend the objects, in which case our authority is not required).  As a general rule we would need to be satisfied that a proposed amendment was in the interests of the charity and its beneficiaries. For example, what impact would the new object have upon existing activities and funds? 

Our test for agreeing to proposed amendments to charitable companies’ objects is “no changes are made which would alter the purposes of the company in a way which is so radical that it would not reasonably have been contemplated by those who have supported the company”.  In cases where a cy-près scheme is necessary we must follow the law and policy as set out in OG 2. It is unlikely that wishing to obtain LCF funding would of itself constitute a cy-près occasion.  A possible solution might be to establish a new, separate charity. See OG 2 Application of property cy-près, OG 500 Schemes, and OG 501 Orders and OG 518 Alteration to governing documents: charitable companies, for further guidance.

ENTRUST requires charities to have an appropriate object related to environmental provision in order to become eligible to receive qualifying contributions. However, to replicate the wording of the approved objects as set out in the Regulations will result in objects which are not exclusively charitable. 

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3  Model charitable objects

The Commission has agreed the wording of some model charitable objects which reflect the approved objects in the Regulations.  ENTRUST have agreed that these will be acceptable for registration with them. "Objects A – F" in the left-hand column are those described in section 3 of OG 55 A1 and reflect those in the Regulations.  The objects in the right hand column are the suggested corresponding charitable objects:

Object A "[insert appropriate charitable purposes depending on proposed use of land e.g. protection of natural environment/provision of open public space or park/public recreation centre. Could have the object of promotion of urban or rural regeneration in an area of social and economic deprivation if other regeneration activities are also carried out] by remedying or restoring land which cannot otherwise be used for economic social or environmental purposes by reason of [pollution] [damage] caused by an activity previously carried out on the land." See footnote 1
Object B  "The protection and preservation of the environment for the public benefit by:

 preventing or reducing any potential causes of pollution in relation to any land which has suffered or may suffer pollution as a result of an activity previously carried out on the land; or

 remedying or mitigating the effects of any pollution in relation to land which has suffered or may suffer pollution as a result of an activity previously carried out on the land. See footnote 2

Object D  "The protection and preservation of the environment for the benefit of the public by:

the provision, maintenance or improvement of a public park, recreation ground or open space; or

the provision of some other public amenity.

Object DA  "The protection and preservation of the environment for the benefit of the public by the conservation or promotion of biological diversity (see footnote 3) through:

the provision, conservation, restoration or enhancement of a natural habitat; or

the conservation or recovery of a species in its natural habitat.

Object E "The protection and preservation of the environment, in particular the built environment, for the benefit of the public by the repair, maintenance or restoration of any building or structure which is of historic or architectural importance or is a place of religious worship”. See footnote 4
Object F  There is no model object for this. It may be capable of being charitable but this will have to be decided on a case-by-case basis and legal advice will be necessary before agreeing a charitable object.

   

Footnote 1

In our model object we link the remediation or restoration of land to another charitable purpose depending on the end use of the land, for example the provision of an open space.  Before we could accept the object as charitable we would need to ensure that the use to which the reclaimed land would be put would be a "charitable" use; we would also need to be satisfied with regard to public benefit).

 

Footnote 2

 In practice this object is very similar to the previous one but would also extend to preventative measures being taken so that pollution does not occur.

 

Footnote 3

“Biological diversity” has the same meaning as in the United Nations Environmental Programme Convention on Biological Diversity of 1992.

 

Footnote 4

The maintenance, repair or restoration of a place of religious worship will already fall within the objects of charities established for the advancement of religion. It may be the case that the maintenance etc. of a particular place of religious worship both advances religion and protects the environment. The object above will cover the maintenance, repair or restoration of a church if it is of historic, scientific or architectural interest or is a place of religious worship. The church does not have to be of historic or architectural interest if it is a place of religious worship.

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4  Other requirements for enrolment as an EB

 

ENTRUST have certain conditions relating to the control and management of charities applying for enrolment as EBs. The governing document must contain provisions ensuring that the organisation:

applies its profit or income only to the objects stated in the governing document;

must not apply its funds to the benefit of landfill operators who make qualifying contributions to it through the LCF or to the benefit of any persons who are contributing third parties in relation to such contributions*.  ENTRUST will accept evidence that a resolution has been passed that precludes the charity from using its funds for the benefit of its contributors, be they landfill operators or contributing third parties. A copy of the relevant signed minute is suitable evidence;

has clear voting and quorum procedures for meetings of the trustee body.

* difficulties can arise when a contributing third party has any commercial relationship with the charity e.g. supplies any goods or services to the charity. This condition means the supplier of such goods or services could not be a contributing third party.

The organisation must not be controlled by:

  • a local authority;
  • a registered landfill operator or operators;
  • a company or companies controlled by one or more local authorities;
  • persons who have managed or controlled an EB whose enrolment was compulsorily revoked;
  • persons convicted of an indictable offence;
  • persons disqualified (under section 72 of the Charities Act 1993 [section 178 of the Charities Act 2011] from being charity trustees;
  • persons connected with any of the above; or
  • persons incapable of controlling an organisation by reason of a mental disorder.

 

The organisation must not be managed by anyone:

  • who controlled or was involved in managing an environmental body whose enrolment was compulsorily revoked by ENTRUST;
  • convicted of an indictable offence;
  • disqualified from being a charity trustee;
  • connected with the previous categories of individuals; or
  • who lacks capability because of a mental disorder.

 

People who are involved in "management" (as described above) are those that might significantly affect an organisation and its resources and might include those who:

  • sign cheques;
  • appoint or dismiss people;
  • buy or sell land;
  • sign purchase orders or contracts;
  • make or sign offers to support projects; and/or
  • seek or receive money.

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5  Accounting

ENTRUST have a number of accounting requirements with regard to the receipt and use of landfill tax monies. However Entrust follows the SORP requirements and recommendations for audit or independent examination of the accounts submitted by unincorporated charities.

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6  Notification of changes to ENTRUST

A registered EB must inform ENTRUST in writing of any changes to their management and control within 7 days. This includes changes in the:

  • organisation's name or address;
  • corporate structure;
  • governing document; or
  • membership, share holders, guarantors, directors, partners or trustees.

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7  Amendment of administrative provision

Where a charity has the power to amend its governing document with regard to such matters as the composition of the trustee body, quorum and voting procedures, it should be able to use this provided that the trustees are acting reasonably and in the best interests of the charity.

Where the charity does not have the power to amend its governing document with regard to these matters, it may be possible for us to facilitate the necessary changes either by order or by scheme where the proposed changes are expedient in the interests of the charity.

When asked to give our consent to the type of amendments described above, we should apply the standard principles for deciding whether the proposed changes are in the interests of the charity.

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8  Charities as contributing third parties

Our view is that a charity may not normally make payments to a landfill operator by way of indemnity in relation to the proportion of a qualifying contribution which does not attract tax relief  (see section 6 of OG 55 A1) unless the charity is satisfied that:

  • the EB's objectives and the project on which it is to spend the qualifying contribution  are charitable and within the trusts of the donor charity;
  • the donor charity ensures that the payment to the landfill tax operator is conditional upon the payment of the qualifying contribution to the EB;
  • the payment of the qualifying contribution to the EB is secured by appropriate contractual arrangements; and,
  • the landfill operator would not have made the qualifying contribution  to the EB without the payment being made by the donor charity.

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OG 55 G1

OG 55 G1  Glossary

Approved Objects are the purposes for which qualifying contributions can be spent under the Landfill Tax Regulations 1996 (as amended).

Distributive Environmental Body means the environmental body that receives qualifying contributions on behalf of non-ENTRUST enrolled environmental bodies.

ENTRUST is the Environmental Trust Scheme Regulatory Body Limited and is the regulator of environmental bodies under the Landfill Tax Regulations 1996. Appointed by HM Revenue & Customs, it audits and monitors environmental bodies.

Environmental Body means an organisation enrolled with the Scheme's regulator (ENTRUST) and able to receive qualifying contributions and carry out projects under the Landfill Communities Fund.

Landfill operators are the persons liable to pay landfill tax.

Landfill tax is a levy paid by landfill operators on waste being sent to landfill which is intended to make the cost of disposing waste to landfill better reflect its environmental impact.

Landfill Communities Fund began life as the Landfill Tax Credit Scheme. The Scheme was created as a result of the Landfill Tax Regulations 1996 (as amended) and allows landfill operators to obtain relief from up a percentage of their landfill tax liability (currently 6.2%) by making qualifying contributions to environmental bodies enrolled with ENTRUST.

Landfill Tax Credits represent the tax relief available to landfill operators under the Landfill Tax Credit Scheme.

Model Objects are those objects which have been accepted as charitable by the Charity Commission and accepted by Entrust as falling within the Approved Objects.

Qualifying Contributions are the sums paid by landfill operators to environmental bodies for application in furtherance of the approved objects which generate landfill tax credits for the landfill operators.

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