Using the tax system to support the UK’s commitment to reduce its environmental impact is not as simple as it seems. ICAEW’s Tax Faculty outlines two new consultations on taxes that aim to reduce carbon emissions.
In January 2020, the government committed to reviewing air passenger duty (APD) to consider how the tax could support connectivity between the nations and regions of the UK, as well as its commitment to reach net zero emissions by 2050. Many parts of the UK rely on air travel to remain connected. For some, road and rail are not options.
This consultation, announced on Tax Day, looks at the case for amending the APD treatment of domestic flights and for increasing the number of international distance bands to align more closely with the government’s environmental objectives.
APD is paid by airlines and is levied on a per-passenger basis on all flights departing UK airports. The rates differ according to a passenger’s class of travel and the distance of their journey.
The tax raised £3.6bn in 2019/20 and its primary objective is to ensure that airlines make a fair contribution to the public finances. However, perhaps of most interest is the seemingly obvious statement, made late on in the document, that in most instances APD will be passed on to the individual and so is ultimately borne by the passenger or business sending them on the flight, rather than by the airline.
Quite apart from APD, the airlines contribute around £22bn to the UK economy in a normal year so this is a multi-faceted problem.
The document also addresses the devolution of APD in Scotland, Wales and Northern Ireland and the government’s initial position on a potential frequent flyer levy, which it rejects as being administratively burdensome.
The aggregates levy, currently charged at £2 per tonne, is a UK tax on the commercial exploitation of primary virgin aggregate used for its bulk properties in construction.
This consultation, Proposals for the tax treatment of aggregate removed during construction work, seeks views on specific proposals to change an existing exclusion from the scope of aggregates levy and introduce a new exemption.
Introduced in 2002 as an environmental tax, it aims to encourage more efficient extraction and use of aggregate and encourage the use of alternatives to virgin aggregate.
Businesses are invited to comment on the proposal to restrict the exclusion for aggregate returned, unmixed, to the site from which it came. This would particularly affect some aggregate from ‘borrow pits’ used in construction. Borrow pits are temporary sites used to extract aggregate for a specific purpose. They are restored when no longer needed.
It also seeks views on whether there should be a general exemption for aggregate arising unavoidably when laying underground utility pipes.
The consultation will be of particular interest to quarrying and construction companies, utility companies and pipe-laying contractors. Farmers, forestry organisations and planning authorities may also be interested.
Carbon emissions tax
In December 2020, the government confirmed that it would implement a UK Emissions Trading System from 1 January 2021, and that the Carbon Emissions Tax would not be implemented. As part of the Tax Day announcements the government has published a summary of responses to the consultation on the CET’s introduction.
More analysis of Tax Day announcements:
- Tax Day announcements take a long-term view
- Tax Administration Framework Review is ‘mammoth’ undertaking by HMRC
- Earlier tax payments may be coming in the next parliament
- HMRC consults on mandating PII for tax advisers
- More detail on notification of uncertain tax treatment
- Transfer pricing documentation requirements to be made more robust
More on sustainablity
ICAEW's Virtually Live 2021 addressed sustainability through a number of sessions. Hear from Emily Mckenzie on the Dasgupta Review and Lord Bilimoria on the sustainability of business. All sessions are now available on demand.
More support on tax
ICAEW's Tax Faculty provides technical guidance and practical support on tax practice and policy. You can sign up to the Tax Faculty's free enewsletter (TAXwire) which provides weekly updates on developments in tax.Sign up for TAXwireJoin the Tax Faculty
This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.