Tax credits

There are circumstances where Scottish Aggregates Tax that has been paid (or would be payable) may be reclaimed through a tax credit. This chapter sets out when and how you may claim a tax credit, and the requirements for doing so. 

1. How tax credits work
2. Movement to other parts of the UK
3. Exportation outside the UK
4. Excepted processes
5. Industrial or agricultural processes
6. Disposal by approved methods
7. Evidence required for a claim
8. Record keeping requirements
9. Bad debt

How tax credits work

A tax credit can reduce the amount of Scottish Aggregates Tax you pay in an accounting period or can result in a repayment if the credit is greater than the total tax due for that accounting period. For example, where the credit relates to a return from a previous accounting period.

Credits are available where aggregate that has been commercially exploited is later:

1. moved to another part of the UK
2. exported outside of the UK
3. used in prescribed industrial or agricultural processes
4. subjected to an excepted process (see Exemptions)
5. disposed of by approved methods
6. the subject of a bad debt 

Claims for tax credits must be made in your tax return, and sufficient evidence and records must be kept to support the claim. There are additional record keeping requirements for credits in relation to exportation outside of the UK, aggregate used in prescribed industrial or agricultural processes and bad debt. 

In all cases you must have paid the Scottish Aggregates Tax to Revenue Scotland unless: 

1. the Scottish Aggregates Tax has not been paid due to the tax credit being claimed in the same period the Scottish Aggregates Tax charge is due

or

2. the Scottish Aggregates Tax would have paid it were it not for a different credit being deducted. 

Further detail on each of the circumstances where you can claim a tax credit is provided below.

Movement to other parts of the UK

If you commercially exploit aggregate in Scotland and later move that aggregate to another part of the UK (England, Wales, or Northern Ireland), a tax credit for Scottish Aggregates Tax may be claimed. 

The credit applies only if the aggregate is moved in the same form as it was when exploited (i.e. it has not been processed into another material).

See Cross border guidance for further rules in relation to the application of Scottish Aggregates Tax in UK cross border transactions.

Exportation outside the UK

You may claim a credit if aggregate is exported outside the UK from a place in Scotland, provided the export takes place without further processing. This includes both direct exports by you and exports made through third parties. The claim can only be made once the aggregate has left the UK.

If you send aggregate to the Isle of Man or the Channel Islands, you should treat it as an export (outside of the UK) for Scottish Aggregates Tax purposes. 

Excepted processes

You can claim a credit if aggregate has been commercially exploited and subsequently used in a process that qualifies as an excepted process.

Excepted processes are:

1. cutting of rock to produce stone with flat surfaces, for example slabs or tiles
2. producing lime or cement from limestone or limestone with anything else
3. extracting or separating a relevant substance (e.g. metal ore, china clay)
4. using shale for non-construction purposes (see Commercial Exploitation – Used for Construction Purposes) 

Credits are only available where the process is applied after the point of commercial exploitation. If an excepted process is applied prior to the point of commercial exploitation, then the aggregate may be exempt from Scottish Aggregate Tax. Full details of excepted processes can be found in Exemptions. 

Industrial or agricultural processes

You can claim a tax credit if aggregate is used in a qualifying industrial or agricultural process. These processes are defined in the regulations. A list of the processes can be found here. 

Disposal by approved methods

You can claim a tax credit if aggregate is disposed of by:

1. returning to its originating site, or a connected site, with no further processing
2. disposal to landfill
3. use in beach restoration, if it is sand or gravel and not returned to the originating site 

Credits do not apply where aggregate is used for construction-related purposes of the landfill site, such as (but not limited to) constructing drainage.

There may be Scottish Landfill Tax implications where aggregate is disposed of in this way.

Evidence required for a claim

To support a claim for a tax credit, you must retain relevant records. This includes: 

1. records showing that you have accounted for and paid Scottish Aggregates Tax on the activity
2. records that can demonstrate the applicability of the particular tax credit being claimed

Record keeping requirements

General requirements for all tax credits

Where you have made a claim for tax credit, you must keep a record detailing that claim (and future claims). This should include the following information, in respect of each claim:

1. the amount of tax accounted for
2. the return in which the tax was accounted for, when this return was paid and the method of payment
3. the circumstances giving entitlement to the credit 

Records you must keep for exportation credit claims 

If you are claiming a credit for aggregate that has been exported outside of the UK, then you must have and retain the following records to demonstrate exportation: 

1. official evidence – this can be a Single Administrative Document (Form C88) stamped by HM Revenue & Customs
2. commercial documents – these can include authenticated waybills or PIM/PIEX International consignment notes for individual consignments, vehicles and containers 

Your claim must also be supported by documents you own, such as: 

1. customer orders
2. sales contracts
3. correspondence between businesses
4. copies of export invoices
5. advice notes
6. consignment lists
7. details of insurance or freight charges
8. evidence of payment
9. evidence the aggregate has arrived abroad 

Records you must keep for industrial or agricultural process credit claims 

If you claim a credit for aggregate used in industrial or agricultural processes, you need to keep evidence that the aggregate has been used in the prescribed process. If it is a customer that has subjected the aggregate to that process, then you may need to get the required evidence from your customer.  

You must keep: 

1. the customer’s name and address
2. relevant invoices and weighbridge tickets
3. a description of the product that is enough to support an audit trail between the sale and your production or stock records
4. a description of the use for which you’re claiming relief
5. a customer declaration of the intended use by an authorised signatory
6. a declaration setting out the limits of your liability and the authority of Revenue Scotland to charge a penalty on the customer 

This information may be given in different forms depending upon the nature of the relationship between you and your customer and the circumstances of the supply. When supplies are made under contract a composite certificate will be enough. 

For sales made on credit terms you should keep orders, quotations, and other commercial documents to support each sale. One signed declaration can support a number of individual sales so long as the individual invoices or weighbridge tickets give a clear audit trail. 

Bad debt

Entitlement to a bad debt credit

Where you have paid Scottish Aggregates Tax in relation to taxable aggregate supplied but the customer has not paid you a bad debt may arise. A credit may be claimed for the Scottish Aggregates Tax related to the unpaid amount.

An entitlement to a bad debt credit can be made if all of the following conditions apply:

• you are not connected with the customer
• you have accounted for and paid Scottish Aggregates Tax on the taxable activity (commercial exploitation) that the bad debt claim relates to
• all, or some of the debt must have been written off as a bad debt in the business’ accounts
• an invoice has been issued by the taxpayer to the customer, which shows the amount due for the supply and the tax payable
• the invoice remains outstanding for the period of one year, starting with the date of issue of the invoice and
• the commercial exploitation occurred through either of the following:
  • the aggregate being supplied to a customer
  • the aggregate being removed from an originating site, connected site or a site where an excepted process was due to be applied to aggregate, but this has not occurred.   

Where the commercial exploitation occurred by using the aggregate for construction purposes or by mixing with any material or substance (other than in permitted circumstances), there is no entitlement to a bad debt credit. 

Whether a person is connected with another is to be determined in accordance with Section 1122 of the Corporation Tax Act 2010. 

Determining the amount of bad debt claim 

The amount of bad debt credit you can claim will be the proportion of the Scottish Aggregates Tax charged on the outstanding amount of the total consideration. 

For example, 20 tonnes of aggregate have been supplied at £10.00 per tonne, including Scottish Aggregates Tax at £2.00 per tonne.  Total consideration is £200.00 and total Scottish Aggregates Tax due is £40.00.   The customer only pays £90.00 and the remaining £110.00 has been written off by the taxpayer following the customer becoming insolvent 12 months later. The total amount of bad debt credit available is restricted to the proportion of Scottish Aggregates Tax that relates to the outstanding amount. This can be calculated by multiplying the total Scottish Aggregates Tax charge by the fraction that the outstanding amount forms of the total consideration: £40.00 x (£110.00 / £200.00)  = £22.00.  

If the total amount of consideration due for a supply of aggregate is less than twice the amount of tax accounted for (and paid) for the supply, then the tax credit you can claim for bad debt is restricted to half the outstanding amount. 

For example, 10 tonnes of aggregate have been supplied at £3.00 per tonne, including Scottish Aggregates Tax at £2.00 per tonne. Total consideration is £30.00 and total Scottish Aggregates Tax due is £20.00.  The customer only pays £20.00 and the remaining £10.00 has been written off by the taxpayer following the customer becoming insolvent 12 months later. The total amount of unrestricted bad debt credit available would be £6.67 (£20.00 x (£10.00 / £30.00)).  As the total amount of consideration (£30.00) is less than twice the Scottish Aggregates Tax accounted for and paid by the customer (£20.00) then the available credit is restricted to £5.00, which is half the outstanding amount (£10.00). 

The rates used in the above examples are for illustrative purposes only.

Attribution of bad debts 

If you have more than one debt with your customer (including debts relating to transactions that have no tax charge) and your customer makes a payment to you, this payment should be attributed firstly to the oldest debt, then to the next oldest debt if there is a remainder, and so on. 

Repayment of credit for bad debt relief 

If you have made a bad debt claim and the debt is later recovered from your customer, you must repay the bad debt credit claimed to Revenue Scotland. 

Where a proportion of the debt is recovered, a proportion of the Scottish Aggregates Tax credit must be repaid. This is calculated by using the following formula: 

Amount Paid / Total Amount x Credit = Repayment Amount 

For example, 20 tonnes of aggregate have been supplied at £10.00 per tonne, including Scottish Aggregates Tax at £2.00 per tonne. Total consideration was £200.00 and total Scottish Aggregates Tax due was £40.00.  The customer only pays £90.00 and the remaining £110.00 has been written off by the taxpayer following the customer becoming insolvent 12 months later. A bad debt claim of £22 has been made: £40.00 x (£110.00 / £200.00) = £22.00 (See Determining the amount of bad debt claim guidance for more details of how to calculate the bad debt amount). The customer subsequently agrees to settle the debt by paying £50 of the debt outstanding. A repayment of £10.00 would be due to Revenue Scotland (£50.00 / £110.00 x £22.00 = £10.00). 

Writing off debts and set off 

Amounts for a taxable activity are considered to be written off where:

• a customer has become insolvent (through sequestration, bankruptcy, entering administration or insolvency)
• you have not been able to recover the outstanding consideration because of the insolvency, and

the amount outstanding has been written off as a bad debt in your accounts

If you owe an amount of money to the customer that can be set off, the amount written off in your Scottish Aggregates Tax bad debt account (see Record keeping requirements for bad debt guidance) is to be reduced by the amount owed by you to the customer. This is also true if the claimant holds an enforceable security. 

Evidence required for bad debt claim 

To make a claim for bad debt, you must have all of the following supporting evidence: 

1. a copy of the aggregates invoice issued by the claimant
2. records showing that the supply has been accounted for and the tax has been paid
3. records showing that the amount has been written off in your accounts as a bad debt 

Record keeping requirements for bad debt 

If you make a claim for a bad debt credit, you must keep a record of the claim in a bad debt account. This account must include all the following information for each claim and each transaction within the claim: 

1. the amount of tax
2. the return in which the tax was accounted for and when it was paid
3. the date and identifying number of the aggregates invoice
4. any amount received for the supply (either before or after the claim)
5. the outstanding amount
6. the amount of the claim
7. the return in which the claim was made 

Claims for Exportation or Disposal Credits

In general, you must make tax credit as part of the tax return you submit to Revenue Scotland. Claims must be made in the tax return of the accounting period in which the qualifying event (e.g. export or disposal) occurred. If you have mistakenly not made a claim in your return you have up to one year from the filing date in order to make an amendment (see RSTP1002 - Taxpayer amendment of a tax return).

Your claim may not be allowed if you have not met all return and payment obligations. 

If you are making a claim for exportation of aggregate outside the UK, then the claim can be made once the aggregate has left the UK.  The required documentation (see Records you must keep for exportation credit claims) must be obtained that evidences the export within 3 months of the date of claim. If documentation is not obtained within 3 months, then the credit is not valid and an adjustment to the return should be made to remove the credit. 

If you are making a claim due to the undertaking of a prescribed industrial or agricultural process, then the claim can be made when the aggregate was used or was intended to be used for the process. See Records you must keep for industrial or agricultural process credit claims for details of the documentation that must be kept to support the claim.