UT (Tax & Chancery) UT/2023/000101 - [2025] UKUT 00072 (TCC)

The approach we should take in construing section 42(2) FA 1996 and Note 9(a) is well established. We must have regard to the purpose of the provisions and interpret the language, so far as possible, in the way which best gives effect to that purpose: see UBS AG v HM Revenue and Customs [2016] UKSC 13 at [61]. As the Supreme Court stated in Rossendale BC v Hurstwood Properties (A) Ltd [2022] AC 690:

External aids to interpretation may assist in determining the purpose and meaning of the provision. Such aids can be used not just to resolve ambiguity, but also to reveal where ambiguity may exist. As the Supreme Court stated in Rossendale:

However, external aids cannot displace the meanings conveyed by the words of a statute that, after consideration of that context, are clear and unambiguous and which do not produce absurdity: see R (O) v Secretary of State for theHome Department [2022] UKSC 3 at [30]:

The position was recently summarised by the Court of Appeal in HM Revenue & Customs v Bluecrest Capital Management (UK) LLP [ 2025] EWCA Civ 23 at [63] and [108]:

The lower rate of tax was intended to apply to the Cristal Waste. The Cristal Waste was not identified specifically, but it is common ground that the words used were intended to describe the reaction giving rise to the Cristal Waste. That is not to say that some other waste might not meet the definition of a qualifying material in Note 9(a). It is necessary to determine whether the FCC Waste falls within the description in section 42(2) and Note 9(a) so as to have the benefit of the lower rate.

We can deal at the outset with a suggestion made by Mr Nawbatt that the word “entirely” in section 42(2) was intended to exclude “mixed” loads. The term “mixed” load is not used in the legislation, but is a shorthand for loads which meet the description set out in section 63(2), namely that, where HMRC so direct:

This was not a point raised in the grounds of appeal or in the appellants’ skeleton argument. In any event, we do not consider that section 42(2), in requiring the material disposed of to consist entirely of qualifying material, is intended only to deny the lower rate to mixed loads which consist of qualifying material and other material. It is necessary to look at the material disposed of and ask the question whether that material consists entirely of qualifying material, irrespective of whether it is a mixed load. It was also common ground that the FCC Waste was not a mixed load in that sense. It was comprised entirely of one material and the question is whether that material is a qualifying material.

Mr Nawbatt’s main submission was that, correctly construed, the test in section 42(2) and Note 9(a) is satisfied if the process by which the relevant waste has been produced involves a reaction between alkaline calcium compounds and the acid arising from titanium dioxide production. As long as that is the case, then the waste product resulting from that process consists entirely of calcium based reaction waste from titanium dioxide production. The FTT found as a fact that the process by which the FCC Waste had been produced did involve a reaction between calcium compounds in the APCR and the ferrous chloride arising from titanium dioxide production. The test was therefore satisfied. He relied in particular on the following findings of the FTT:

In reaching its conclusion that the FCC Waste did not consist entirely of calcium based reaction waste, Mr Nawbatt submitted that the FTT wrongly took into account irrelevant factors, in particular those referred to at [121] to [124]. Further, in distinguishing the FCC Waste from the Cristal Waste the FTT wrongly took into account the factors referred to at [132] and [136].

Mr Nawbatt also submitted that on the FTT’s approach to the test, described at [124], the Cristal Waste also did not consist entirely of calcium based reaction waste from titanium dioxide production. The FTT relied in part on the extent of the non-reactive material and non-calcium based reactive material in the APCR. However:

He went on to say that it would be an absurd result if the Cristal Waste did not satisfy the test in Note 9(a), when it was common ground that Note 9(a) was specifically intended to apply a lower rate of tax to the Cristal Waste. He submitted that the FTT’s response to that difficulty was to put a gloss on the statutory language by reference to its “essence of the process” test. Instead, the FTT should have held that both the FCC Waste and the Cristal Waste satisfied the statutory test.

In Mr Nawbatt’s submission, the FTT was also wrong to say that the statutory language was clear, so that the environmental objectives and context did not assist in construing the language, whilst at the same time placing a gloss on that language to explain why the Cristal Waste was a qualifying material. The test is concerned with the chemical reaction taking place in the process and not the purpose of the process. Based on the chemical reaction taking place, both the FCC Waste and the Cristal Waste were qualifying materials.

The FTT’s gloss in looking at the essence of the process and the purpose of the process were, said Mr Nawbatt, inconsistent with and frustrated the environmental objectives and context of the statutory provisions. The FTT failed to have regard to the environmental objectives underpinning the provisions, the consultation which preceded the QMO, the Treasury criteria and the nature of other wastes listed in the schedule to the QMO. The implication of the FTT’s approach is that only waste resulting from the neutralisation of ferrous chloride by a virgin calcium reagent would qualify for the lower rate of tax. Waste resulting from any process which had an ancillary purpose, such as treating one hazardous waste with another waste in accordance with the waste hierarchy, would be excluded from the lower rate. The unchallenged expert evidence was that neutralising the ferrous chloride using a waste material was best practice and should be implemented wherever possible. The FTT ignored that evidence. It approached the issue from the opposite perspective, and found that the characteristics of the FCC Waste were a reason why it was not a qualifying material. The starting point ought to have been to focus on the reaction taking place, taking into account that it was best practice to substitute a waste for a virgin raw material.

We do not accept Mr Nawbatt’s submissions. The FCC Waste cannot fall within the description in Note 9(a) simply because, as Mr Nawbatt submitted, the process by which it was produced “involves” a reaction between alkaline calcium compounds and the ferrous chloride. Nor can Note 9(a) apply simply because use of the APCR to neutralise the ferrous chloride amounts to a waste recovery operation within the waste hierarchy and is a best available technique. Mr Nawbatt’s submission in our view places too much emphasis on the context in which the QMO was enacted at the expense of the words used in section 42(2) and Note 9(a).

In our view, the statutory language describes a straightforward test which requires consideration of whether the waste in question is entirely a calcium based reaction waste from titanium dioxide production. We consider that the FTT’s reasoning at [121] and [122] was correct. It is self-evident from the following facts that the FCC Waste does not meet that statutory description:

In particular, we agree with the FTT that the words of section 42(2) and Note 9(a) are clear. To be a qualifying material, the waste must consist entirely of calcium based reaction wastes from titanium dioxide production. The environmental context, the consultation which led to the QMO and the Treasury criteria do not serve to explain or modify the statutory words. Indeed, it is recognised that there are limits as to the assistance that broad brush policy goals can provide in determining the precise scope of a landfill tax provision: see Devon Waste Management Limited v HM Revenue & Customs [2021] EWCA Civ 584 at [68] per Lady Rose. To use external aids to explain or modify the statutory words so as to include the FCC Waste in the list of qualifying materials would be an exercise in re-writing the legislation rather than an exercise in statutory construction.

This does not mean that only waste resulting from the neutralisation of ferrous chloride by a virgin calcium reagent qualifies for the lower rate of tax. Nor does it mean that the FTT’s conclusion is inconsistent with the statutory obligation to apply the waste hierarchy because that conclusion promotes use of virgin material rather than recovery or use of waste. We do not know whether there are other alkaline waste products which could be used to neutralise the ferrous chloride in circumstances where the resulting waste would consist entirely of a qualifying material.

The fact that using APCR to neutralise the ferrous chloride is a best available technique, is environmentally beneficial and meets the Treasury criteria is not sufficient to bring the FCC Waste within the lower rate of tax. The Treasury must set criteria for qualifying materials and in doing so, must have regard to those criteria and any other matters they consider relevant. One might expect the Treasury to have had regard to other environmental factors, including the waste hierarchy. Indeed, Mr Nawbatt accepted that not all the wastes listed in the QMO fulfil all the Treasury Criteria, although he did submit that the other wastes listed in the Schedule to the QMO were generally mixed, inert materials with a low environmental impact when sent to landfill. That may be true, although there was no finding to that effect.

We are satisfied, taking into account the external aids relied on by Mr Nawbatt, that the intention of Parliament was to apply a lower rate of tax to certain wastes which had a low environmental impact. Parliament left it to the Treasury to determine the criteria which it would take into account when defining the wastes which qualified for the lower rate, and Parliament also provided that the Treasury could also take into account other factors it considered relevant. It is ultimately a matter for the Treasury to list qualifying materials, and the words used in Note 9(a) are clear.

In addition to his submissions based on the environmental and statutory context, Mr Nawbatt focussed on the FTT’s references to the essence of the process and whether the only purpose of the process was to neutralise the ferrous chloride.

The FTT’s first reference to the essence of the process was at [124(2)] where it stated its view that the essence of the process resulting in the FCC Waste was the neutralisation of the APCR with the ferrous chloride and not vice versa. The FTT reached that view by reference, in part, to its findings at [123] which it considered supported its conclusion that the process was more accurately described as the neutralisation of the APCR rather than the ferrous chloride.

We agree with Mr Nawbatt that in considering whether the FCC Waste was entirely a calcium based reaction waste, the FTT placed an impermissible gloss on the statutory language. In our view, it erred in law when it considered the essence or purpose of the process. It is no part of the statutory test to consider whether, on the facts of this case, the process involved neutralising the ferrous chloride with the APCR or vice versa. The statutory test makes no reference to the purpose of the reaction, save that it does require that the calcium based reaction waste must derive from titanium dioxide production. In that sense, the relevant waste must be produced as part of the process of producing titanium dioxide, which the parties accept includes dealing with the waste ferrous chloride. However, in our view it is not then necessary to consider whether, in dealing with the waste ferrous chloride, the only purpose of the reaction was to neutralise the ferrous chloride. It is not the case that if there is any other purpose or benefit to the process then the waste falls outside Note 9(a). The statutory language does not in our view justify such an approach.

Mr Puzey submitted that in seeking to identify the “essence of the process”, the FTT was not applying a gloss to the statutory language. Rather, it was simply using intelligible language to distinguish the different processes leading to the FCC Waste and the Cristal Waste and the very different composition of those wastes. In doing so, it was expressing the only conclusion available to it on the facts.

We do not accept that submission. When the FTT went on to compare the Cristal Waste with the FCC Waste, it returned to its consideration of the essence of the process at [129]. It then said at [130] that it was “[a]pplying that test…” and in elucidating the test it said: “In other words, the only purpose of the process is to neutralise the [ferrous chloride] that has arisen from titanium dioxide production”. It was not simply using intelligible language to distinguish the different processes involved.

The FTT was certainly entitled to have regard to the obvious factual differences between the processes which led to each waste. We acknowledge that the reasoning in a decision should not be subject to a narrow textual analysis, or construed as though it was a piece of legislation or a contract: see Volpi v Volpi[2022] EWCA Civ 464 at [2(vi)]. However, in our view the FTT went beyond the statutory language and had regard to irrelevant factors, namely the essence and purpose of the processes. The FTT ought to have focussed on the calcium based reaction and whether the FCC Waste was entirely a calcium based reaction waste from titanium dioxide production.

We therefore consider that the FTT erred in law when it adopted, as part of its reasoning, that the essence of the process which created the FCC Waste was to neutralise the APCR with the ferrous chloride.

The reason why the FTT considered the essence of the process was because it was trying to explain why the Cristal Waste fell within the statutory description but the FCC Waste did not. We accept that the FTT was right to seek to explain what distinguished the Cristal Waste from the FCC Waste. It did so in order to see whether the result in relation to the Cristal Waste would be absurd. If the test it had applied meant that the Cristal Waste did not qualify for the lower rate, that would be an absurd outcome. Everyone agreed that Note 9(a) was intended to apply a lower rate of tax to the Cristal Waste. However, in distinguishing between the two wastes at [129], the FTT again applied a test which required it to consider whether the essence of the process by which the waste was produced involved a reaction between alkaline calcium compounds and the ferrous chloride arising from titanium dioxide production.

It is clear to us, without reference to the essence or only purpose of the process, that the Cristal Waste was entirely a calcium based reaction waste from titanium dioxide production, and that is for the following reasons.

The existence of those additional materials in the APCR and in the FCC Waste means that the FCC Waste is not entirely the product of a calcium based reaction process. The fact that treating the ferrous chloride with APCR has become a best available technique does not justify a conclusion that the FCC Waste is entirely a qualifying material for the purposes of section 42(2) and Note 9(a). At most, it might support arguments for an amendment to the list of qualifying materials, but that is a matter for Parliament.

Mr Nawbatt noted that the individual compounds referenced at Note 9(b) – (j) as falling within Note 6 must be mixed with other waste material because the individual compounds would not be waste material. That may be the case, but there was no evidence before the FTT or available to us in that regard that would assist in construing Note 9(a).

Mr Nawbatt submitted that it was not open to the FTT or to us on the basis of the common ground recorded at [71] of the Decision to find that the FCC Waste was not entirely a calcium based reaction waste. We do not accept that submission. Adopting the same sub-paragraph numbers as in [71]:

In short, the Cristal Waste was entirely a calcium based reaction waste. The process leading to the FCC Waste produced some calcium based reaction waste but the FCC Waste was not entirely a calcium based reaction waste.