Those living in rural areas will know about septic tanks, a crude but surprisingly effective device for dealing with wastewater where no mains drainage is available. The technology has been around for centuries and, since there are no moving parts, there has often been little incentive for owners to upgrade.
Unfortunately, traditional septic tanks are not particularly good at keeping nitrates and phosphates out of the water supply network, particularly where the run-off from the tank passes straight into a watercourse. As a result, in 2015 regulations were introduced to make such systems illegal from 1 January 2020. Current regulations state:
“You must use a small sewage treatment plant to treat the sewage if you’re discharging to a watercourse such as a river or stream. A sewage treatment plant, also known as a package treatment plant, treats sewage to a higher standard than a septic tank.
If your septic tank discharges directly to a watercourse, as soon as possible you must do one of the following:
- connect to a public foul sewer
- replace your septic tank with a small sewage treatment plant
- install a drainage field (also known as an infiltration system) – a series of pipes with holes placed in trenches and arranged so that the waste water can trickle through the ground for further treatment – and check if you meet the general binding rules for discharges to ground
You must have plans in place to do this work within a reasonable timescale, usually 12 months.”
In practice, the current rules are largely ignored and septic tanks are normally only upgraded when a house changes hands. The rules state:
“If you buy or sell a property with a septic tank that discharges directly into a watercourse, you should agree with the buyer or seller who will be responsible for replacing or upgrading the treatment system. You should agree this as a condition of sale.” Conveyancing solicitors are generally rather better at ensuring compliance in this area than either the Environment Agency or existing property owners and hitherto this has been virtually the only driver to upgrade (and a fairly effective way of slowing up the conveyancing of rural properties).
However, things are now moving on. Under Nutrient Neutrality (NN) rules, funds are available to those upgrading existing septic tanks to modern “sewage processing systems” (which work like a traditional sewage plant to trap the nitrates and phosphates into the sludge and keep them out of the run-off which is therefore almost pure water). As a result, in many river catchment areas schemes have been set up to approach householders with non-compliant systems, offering to install free modern septic tanks in exchange for the NN. The value of the installation for each house is probably in excess of £10,000 so it is attractive offer (and the stick accompanying the financial carrot is that once a significant number of non-compliant systems have been removed, water authorities may begin chasing down and fining the remaining non-compliant units).
But what about tax? As always, it depends on the circumstances. For the purely domestic unit, it would appear (and HMRC seem to have informally agreed this analysis) that the benefit from the scheme is not taxable because it is not a profit from trade and, arguably in the alternative, the benefit is only available to the taxpayer because he has surrendered his right to the NN credits. For the commercial unit, the position needs more thought: the value of the installation is derived from a business asset, so may well be part of the trade, but of course the proceeds have been wholly reinvested into a repair to the existing system so will be an allowable expense. A problem might arise where there is a substantial element of improvement, such that the expenditure constitutes a fixture rather than a repair, and capital allowances come into play, or where the new unit includes a domestic element but the old one did not.
Given that the cash neutral nature of these schemes means that they will not necessarily show up in the business records, the farm septic tank may well stand closer inspection over the next few years.
*the views expressed are the author's and not ICAEW's