An HMRC consultation designed to clarify the rules around the application of the lower rate of landfill tax is due to end next week, amid claims from waste and recycling firms that new regulations will push up costs and may prove a disincentive to recycling.

HMRC announced in May 2012 that waste products (called 'fines') from recycling processes, grit and screenings would no longer be eligible for the lower £2.50 rate of landfill tax applied to inert material, and must be charged the full rate which is currently £72. This would include much of the builders' rubbish put into skips.

Such material was ruled not to come into the lower rated 'naturally occurring' classification, and the HMRC's informal consultation, which began earlier in the summer and closes on 20 October, is designed to provide further guidance on this issue.

HMRC states in the guidance: 'Group 1 of the 2011 Order allows the following waste materials to be lower rated: naturally occurring rock, clay, sand, gravel, sandstone, limestone, crushed stone china clay, construction stone, stone from the demolition of buildings or structures, slate, sub-soil, silt, and dredgings. Generally, these materials are formed by a natural process and are therefore naturally occurring.'

However, the guidance states that soil substitutes and bricks are not eligible as they are 'man-made'. The consultation also looks at situations where different types of waste may be combined in the same load, and says the waste transfer documentation must accurately record the composition of every consignment. HMRC has produced a table which provides examples of acceptable descriptions.

HMRC said it is currently considering industry proposals that landfill operators' pre-acceptance and audit procedures in conjunction with testing may provide evidence for the lower rate of tax in relation to certain types of waste.

The HMRC crackdown is designed to stop rogue waste contractors hiding 'active' or 'hazardous' waste in material sent to landfill by encouraging a greater screening of the material that comes into a waste facility or transfer station. Waste operators say the draft guidance will push up their costs, creating a 'skip tax' and an increase in fly tipping.

However, Jayne Harold, environmental tax expert at PwC, said: 'This isn't about a tax hike but making sure the law's applied properly. HMRC wants to ensure skip operators only benefit from the lower tax rate if waste is uncontaminated, which has been the rule for some time. To get the tax benefit, operators will now have to prove waste has nothing which does not qualify mixed in. Proving waste is uncontaminated will come at a price, but the potential tax saving of £69.50 a tonne should make this worthwhile.'

'If skip waste is contaminated or there's no proof otherwise, skip operators will be liable for the standard rate of tax. There's a degree of uncertainty for land fill site operators, who may take the hit for any increased tax if they can't pass the costs back to the skip operators,' Harold said.

HMRC aims to publish formal guidance on the landfill tax regulations by 11 November 2013.