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HMRC confirms VAT treatment of voluntary carbon credits

Author: ICAEW Insights

Published: 13 May 2024

With effect from 1 September 2024, the sale of voluntary carbon credits will be standard-rated where the place of supply is the UK.

Voluntary carbon credits (VCCs) are tradable certificates that verify the reduction or removal of one metric tonne of carbon dioxide, or equivalent greenhouse gases from the atmosphere. They differ from compliance market credits, which are used within regulated emissions trading schemes. 

HMRC had considered that VCCs could not be incorporated into an onward supply, and there was no secondary market for them. This meant that VCCs fell outside the scope of VAT.  

HMRC recognises that a secondary market for VCCs has emerged, and that businesses now incorporate VCCs into their onward supplies. As a result, from 1 September 2024, the sale of most VCCs will be treated as taxable for VAT at the standard rate, where the place of supply is the UK. 

The following activities in relation to VCCs continue to fall outside the scope of VAT: 

  • the first issue of a VCC by a public authority;
  • the holding of VCCs as an investment where there is no economic activity;
  • donations to VCC projects; and
  • sales of VCCs from unverified or self-assessed projects. 

The VAT relief granted under the terminal markets order will also apply to contracts in taxable VCCs traded on terminal markets from 1 September 2024. 


Further reading: 

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