International Mother Earth Day and the role of tax
To mark International Mother Earth Day on 22 April, Reshma Johar explores some of the UK taxes put in place to protect the environment.
The United Nations designated 22 April as Mother Earth Day to encourage everyone to recall how Earth provides life and sustenance and highlight “the interdependence that exists among human beings, other living species and the planet we all inhabit”.
As part of its commitment to sustainability, the UK government has legislated to reduce its net emissions by 100% back to the 1990 levels, otherwise referred to as “net zero”, by 2050. The Prime Minister announced a further intention to cut emissions by 68% by 2030.
As Mother Earth Day dawns this week, it seemed a good opportunity to review some of the taxes that have been introduced to reduce environmental impacts in the UK.
The UK government raised £28bn from this environment tax in 2019/20, excluding the VAT element. Fuel duties are currently levied on purchases of petrol, diesel and other fuels. Fuel duty accounts for 1.2% of total public sector receipts and was last increased a decade ago.
The 2021 Budget once again kept fuel duty frozen as a way of “keeping the cost of living low”. The current fuel duty is 58p per litre plus VAT. Since 1999/2000 revenue raised from fuel duty has declined due to improved fuel efficiency and/or the freeze in fuel duty.
We can only speculate whether or not an increase in fuel duty would drive more people into buying more fuel-efficient vehicles or using public transport. The government is encouraging consumers to buy electric cars, but what would replace the fuel duty revenue deficit - a hike in electricity bills, perhaps?
Several airlines have collapsed in recent years, with the likelihood of many more to come as a result of the global pandemic. As part of the 2020 Budget, the government undertook a review of Air Passenger Duty (ADP).
Flights are currently VAT free and aviation fuel incurs no duty. ADP is paid by airlines and levied on a per-passenger basis on all flights departing from the UK. In 2019/20 ADP raised £3.6bn. Following on from the November announcement, the government released a consultation seeking views on reforms to APD on 23 March.
Imports of food, feed and drink except beverages far exceed exports. In 2019, fruit and veg imports amounted to £11.5bn and meat was £6.6bn. What we consume in the UK will carry a global carbon footprint.
There are currently more than 560 landfill sites in England.
Landfill tax was introduced in 1996 as an attempt to reduce waste ending up in landfill sites and for businesses to consider alternative options, such as recycling. The standard rate of tax from 1 April 2021 will be £94.15 per tonne and lower rate £3.10 per tonne.
The tax is charged by a company or local authority to businesses. There has been a steep decline in revenue raised from landfill taxes, which HMRC consider is as a result of the tax levied. It may also have something to do with the several exemptions from the tax. Overall standard rate tonnage waste disposal has decreased by 72% over the last 10 years.
There is also a landfill tax credit scheme which aims to encourage landfill scheme operators to support local environmental projects. The tax credit is worth 90% of contributions made (subject to a cap). The Tax Policies and Consultations Spring 2021 document indicated that this aspect of the tax will be reviewed.
The aggregates levy is imposed on commercial exploitation of rock, sand and gravel to encourage the use of alternative recycled materials. The tax applies to around 1,500 sites in the UK where aggregates have dug from the ground, dredged from the sea in UK waters or imported.
The levy is charged at £2 per tonne and payable each quarter. However, there are several exemptions from the tax. A new consultation is also due to be published on aggregate removed during construction works.
Climate change levy
The climate change levy is a tax on electricity and gas use supplied to businesses. Introduced in 2001 as part of the climate change programme, the levy is charged on industrial commercial, agricultural and public services (with some exceptions).
The carbon price support rate applies to those that have their own generating stations or operate combined heat and power stations. The levy is collected by the energy supplier. On 3 March 2021, a policy paper was published detailing the rates for 2022/23 and 2023/24.
Carbon Emissions Tax (CET)
The government published the summary of responses to its consultation on the CET6 which closed in September 2020. The government is not taking forward the CET in light of the announcement that it would implement a UK emissions trading system to replace its participation in the EU’s equivalent scheme.
The EU UK Emissions Trading Scheme (UK ETS)
Prior to 1 January 2021 the UK was part of the EU ETS. Around 1,000 power stations, refineries and high emission installations in the UK participate in the EU ETS and are required to comply with the EU ETS until 30 April 2021.
The UK ETS applies to energy intensive industries, the power generation sector and aviation. HMRC have outlined a timetable for onboarding registry accounts.
Plastic packaging tax
Due to be introduced in April 2022, the plastic packaging tax will be levied on businesses that either manufacture or import plastic packaging, which contains less than 30% recycled plastic. The tax will be £200 per tonne of the plastic packaging and has been estimated to impact 20,000 producers and importers of plastic packaging. There are exemptions included for small businesses.
First year allowances have been extended from April 2021 to April 2025. The allowance aims to encourage expenditure on zero-emission assets.
If a van is provided by an employer to an employee for exclusive use, historically there would be a taxable benefit, reported on a P11D form. From 6 April 2021 no taxable benefit arises provided that the van is a zero-emissions van.
Cycle to work scheme
The cycle to work scheme was designed to offer employer incentives to provide the use of a cycle or safety equipment, not only to benefit the environment, but to improve health and save costs to the NHS. The cycle or equipment is not treated as a taxable benefit provided there is no transfer of the property, the employee uses them mainly for qualifying journeys (work commutes) and that the scheme is made available to all employees. Employers will need to consider VAT, capital allowances and how to manage the associated salary sacrifices.
The taxes introduced all seem to be loaded with good intentions to reduce negative environmental impacts. These taxes could be seen as a reaction global pressure from the likes of Greta Thunberg, Sir David Attenborough and many others. It also helps that many of these levies raise a good amount of revenue for the Exchequer.
However, it is difficult to say how we can a) afford to wait until 2050 to achieve net zero and b) how it can be achieved without true commitment from everyone in the country - which extends to tax policies.
Speaking to our research and development claims team, it was great to hear that several clients successfully claimed R&D credits for environmentally friendly initiatives. One client went a step to ensure that the materials could also be repurposed in the future.
Capital allowances also provide several initiatives to encourage businesses to invest in environmentally friendly plant, machinery and cars.
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Reshma Johar is a Tax Consultant at Carter Backer Winter. She is both ATT and CTA qualified with experience gained from practice and her involvement with the CIOT. She has a particular interest in OMB and private client taxes.